Operational error in 457(b) for non-profit

Ugh - just reviewing a 457(b) plan where there was an operational error a couple of years ago. Long story short, a participant who terminated employment was required, under the terms of the plan, to start receiving distributions within 60 days. Instead, participant was allowed to make an election to delay distributions to start at age 70-1/2.

Under the excellent reference book by Peter Gulia, Garry Lesser, and David Powell (the 457 Answer book) it doesn't sound hopeful as to possibly correcting - limited at best even for governmental plans, and worse yet for non-profits. So my question relates to what is done in real life - aside from the obvious of seeking legal counsel. Seems like it could be ignored, and hope no one notices, or attempt to correct as best they can (start distributions now, and hope no one notices) or treat it as an ineligible plan, subject to 457(f) as of a couple of years ago?

Belgarath, the 457(b) regs do permit an election to defer payment. See Treas. Reg. 1.457-6. You're saying that the plan document did not provide for the election, or that the individual made the election outside the permitted time period?

Individual made an election to defer the start date for payments to a date later than what was permitted in the document. Post-severance payments could be deferred, but not beyond age 65. Post severance payments for someone who retired later than 65 had to start within 60 days. This person retired after 65, but was mistakenly allowed to postpone payments until 70-1/2. So there's an operational error, and under 1.457-3(a), it appears that the plan, in both form and operation, must comply with the 457 requirements. When I'm grasping at straws here, I was wondering if, since such an election is PERMITTED under the 457 regulations (as you note) whether an operational error which nevertheless allows something that is otherwise permitted in the regulations, can be "forgiven" without endangering the status of the plan?
 

I had a case involving some of these issues a few years ago. My analysis was that under the Code and regs, the amount was taxable to the participant when it was "made available" under the plan, which by definition was the date when he should have taken it after reaching age 65. In other words, arguably what you have is a reporting W-2 reporting error. That has some messy consequences, however. 

Thanks Luke.