EPCRS Missed Deferral Opportunity

From EPCRS Appendix A .05(2)(b)

"Under this correction method, a plan may not be treated as two separate plans, one covering otherwise excludable employees and the other covering all other employees (as permitted in §1.410(b)-6(b)(3)) in order to reduce the applicable ADP, the corresponding missed deferral, and the required QNEC".

This has always made my mind bend in uncomfortable directions because testing everyone together (i.e., not testing OE's separately) always reduces the ADP for the NHCE's and thus reduces the correction.  I am never excluding the otherwise excludables "in order to reduce the corection."  Excluding the otherwise excludables would INCREASE the correction?

Is it possible the authors just don't know anything about running ADP tests?

What if the person you are correcting would be in the OEX group and the group as a whole has a zero ADP.  Would the correction be zero?

Ahh, the failure to provide the opportunity to participate would always be to those who were otherwise excludables, wouldn't it?  That's what I was missing!  Thanks!!

Side note:  what if the NHCE group has a zero ADP (think SH match plan and no staff participates)?  With OEX or not, the ADP is zero.  So no correction?

I always thought this correction in EPCRS was off base.  What if the person missed is a newly-hired executive who was planning on deferring 10% of pay.  But the staff puts away nearly nothing.  Now the participant is stiffed on the QNEC and the employer makes out b/c the ADP is much lower than what the participant would have started out with.

Or, the flip of that.  Maybe the person skipped was a minimum wage data-entry type, and the rest of the staff are high paid science researchers or something.  They are all putting away 8-10%.  Now the ER is penalized (I know, it was their fault to begin with, no tears here) b/c not they have to give a 4.5% QNEC to someone who probably wasn't gonna defer anyway.

I wish EPCRS just said do a flat 2, 3, 4% or something.

Also, if the correction happened early in the year, they have to remember to do the correction the next year.  SH plan would be even more difficult to remember--no ADP testing generally.

18 minutes ago, austin3515 said:

Ahh, the failure to provide the opportunity to participate would always be to those who were otherwise excludables, wouldn't it?

Not if the plan requires 1 YOS for entry.

Not necessarily, as I'm finding out.  (Oh we hired someone and didn't realize they became eligible at their anniversary date last year....)

17 minutes ago, BG5150 said:

Not if the plan requires 1 YOS for entry.

Well that is true and all, but I was only trying to write down the rationale for the provision.  And I think my rationale is the explanation (well at least it reconciled it in my head).

One final thought, looking at the text, it doesn't say that you can't do it (period), it says you can't do for purposes of reducing the average for your correction percentage. 

Agree with CuseFan. It's poorly stated in the Rev. Proc., but I don't think that the "in order to reduce..." clause is intended as a helpful aside explaining why someone might want to do it, but rather an operative negative  condition, i.e., you can't do it if the result is to reduce the correction percentage.