EPCRS Before You Make a Mistake

Let's say a client has 6 month eligibility for 401k but a year wait for a match in the document.  But let's say the client communicated to the previous TPA that they wanted the match eligibility to line up with 401k eligibility and communicated that to the prior TPA when they were doing the Cycle 3 restatement.  We prepared the match based on 12 months eligibility but the client has already told the employees they are eligible for the match sooner.

Let's say hypothetically we didn't even look at the document and just prepared the match based on the 6 month eligibility because the client told us to and they funded it.  Then a CPA auditor comes and says "hey what the heck you didn't use the 1 year eligibility for the match??".   Our response:  "Good catch, I'll self correct with an amendment today to get rid of that."

So by that rationale, if we catch it BEFORE the mistake is made (which is our case), shouldn't we have the same opportunity to self-correct via amendment, especially when we are increasing benefits to non-highlys?  It seems unfair to punish someone for NOT making a mistake.

So, the prior TPA did not do the cycle 3 amendment incorrectly?

If so, and the client already funded the match, doesn't that mean a mistake was made? 

Or, in any case, can't you do an 11-g amendment to let people in early for the match for '21?

"If so, and the client already funded the match, doesn't that mean a mistake was made? "

They did not already fund the match.  We identified the discrepancy while we were doing the match calculation.  That's really the crux of the question.  If I hadn;t been so good at my job, I would be able to correct the mistake,.

"Or, in any case, can't you do an 11-g amendment to let people in early for the match for '21?"

Well I'm not failing coverage so I don't see how that would work.

1 hour ago, austin3515 said:

Well I'm not failing coverage so I don't see how that would work.

You do not need to be failing anything to do an 11-g amendment.

You can generally adopt an amendment within 65 days of year end to increase benefits.  I think that is more of a pension concept but it might apply here; just throwing it out.  

I'll toss this out as a possibility - any chance that the plan provides for PS with everybody in their own group, and if so, would contributing the otherwise "missed" match in the appropriate amounts to those employees pass testing?

Of course, even if this could work, might be issues if vesting for the PS is less favorable than for the match...

Ha!  I thought of that too!  But here is the problem.  Any contrbiution that is made in reference to someone's deferrals IS A MATCH.

Also the eligibility for the profit sharing is the same as the match...

40 minutes ago, Bird said:

You can generally adopt an amendment within 65 days of year end to increase benefits.  I think that is more of a pension concept but it might apply here; just throwing it out.  

REg citation?

7 minutes ago, austin3515 said:

Ha!  I thought of that too!  But here is the problem.  Any contribution that is made in reference to someone's deferrals IS A MATCH.

No no no - it wouldn't be in reference to deferrals, it would be sheer "coincidence" that it happened that way... you look good in an orange uniform, right?

Austin3515, why doesn't this qualify for self-correction by amendment under the latest EPCRS Rev. Proc.? Have you looked at that and determined it does not apply for some reason?

Intersting.  Here is the language.  I suppose it does not specifically say you can;t intentionally do it wrong and then use EPCRS to correct.  I guess I'm not finding any language in the overview section that says anything like "you're only allowed to do this if you did it wrong by accident."  I think this is really most applicable (only applicable?) to amendments because as I mentioned the plan that catches the mistake before it happens is at a significant disadvantage over the one who messed it up and now has an easy fix.  Thoughts on Luke Baileys ingenious take?

(4) Early Inclusion of Otherwise Eligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an otherwise eligible employee in the plan who either (i) has not completed the plan's minimum age or service requirements, or (ii) has completed the plan's minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan's actual operations. The amendment may change the eligibility or entry date provisions with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies 401(a) at the time it is adopted, (ii) the amendment would have satisfied 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. For a defined benefit plan, a contribution may have to be made to the plan for a correction that is accomplished through a plan amendment if the plan is subject to the requirements of 436(c) at the time of the amendment, as described in section 6.02(4)(e)(ii).

austin3515, here's the section I was thinking of. 4.05(2)(a) of Rev. Proc. 2021-30: 

(a) Correction of Operational Failure by plan amendment for a Qualified Plan or § 403(b) Plan. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an Operational Failure by plan amendment in order to conform the terms of the plan to the plan’s prior operations only if the following conditions are satisfied: (i) The plan amendment would result in an increase of a benefit, right, or feature. (ii) The provision of the increase in the benefit, right, or feature to participants is permitted under the Code (including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of section 6.02 and any other applicable rules of this revenue procedure.

Increase of BRF? Check.

Satisfies the various Code sections? Yes, as long as the < 12 months group satisfies 410(b).

Satisfies general correction principes? Don't see why not.

1 hour ago, austin3515 said:

I suppose it does not specifically say you can;t intentionally do it wrong and then use EPCRS to correct. 

If you intentionally do it wrong, you may not qualify for self-correction because you do not have a good procedure. However, what about

10 hours ago, austin3515 said:

Let's say a client has 6 month eligibility for 401k but a year wait for a match in the document.  But let's say the client communicated to the previous TPA that they wanted the match eligibility to line up with 401k eligibility and communicated that to the prior TPA when they were doing the Cycle 3 restatement.  We prepared the match based on 12 months eligibility but the client has already told the employees they are eligible for the match sooner.

Let's say hypothetically we didn't even look at the document and just prepared the match based on the 6 month eligibility because the client told us to and they funded it.

strikes you as "intentional?" Catching the error on your own <> committing the error intentionally.

I think you had me at the fact that I am satisfying each and every requirement to make the amendment under EPCRS...

39 minutes ago, Luke Bailey said:

strikes you as "intentional?" Catching the error on your own <> committing the error intentionally

Well I haven't done anything yet, I guess that's the dilemma.  If I could go back in time and not look at that document I might take that option, LOL.  But I think you've satisfied me with your last post!

22 hours ago, austin3515 said:

Well I'm not failing coverage so I don't see how that would work.

You do not need to be failing anything to do an 11-g amendment.

So why not just do that?

Amendment:  for plan year ended 2021, participants A, B, C, & D will have the service requirement for match (and/or PS) waived for that year only.

What I describe does not seem to be any of the things listed?  I'm not trying to amend for those purposes.  My plan has not issues at all for those purposes?

(2) Scope of corrective amendments. For purposes of satisfying the minimum coverage requirements of section 410(b), the nondiscriminatory amount requirement of § 1.401(a)(4)-1(b)(2), or the nondiscriminatory plan amendment requirement of § 1.401(a)(4)-1(b)(4), a corrective amendment may retroactively increase accruals or allocations for employees who benefited under the plan during the plan year being corrected, or may grant accruals or allocations to individuals who did not benefit under the plan during the plan year being corrected. In addition, for purposes of satisfying the nondiscriminatory current availability requirement of § 1.401(a)(4)-4(b) for benefits, rights, or features, a corrective amendment may make a benefit, right, or feature available to employees to whom it was previously not available. A corrective amendment may not, however, correct for a failure to incorporate the pre-termination restrictions of § 1.401(a)(4)-5(b).

austin3515, you would be correcting an "Operational Failure," which under the most recent incarnations of EPCRS rev procs can generally be done by a retroactive plan amendment. Here's the definition of "Operational Failure" in Rev. Proc. 2021-20. It fits, right?

(b) Operational Failure. The term “Operational Failure” means a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions.

I agree with you Luke and I'm going that route.  I was responding to BG5150 who was telling me he thought I could use -11(g) but I just don't see how that would work...

1 hour ago, austin3515 said:

I agree with you Luke and I'm going that route.  I was responding to BG5150 who was telling me he thought I could use -11(g) but I just don't see how that would work...

Great, austin3515.