Ineligible participant funds Salary Deferrals in Safe Harbor 401(k) Plan

We administer a 401(k) Plan with a safe harbor match.

Turns out the employer allowed an employee who was not eligible, to make salary deferral contributions.

Generally, this can be self corrected by having the plan execute a corrective amendment that would allow the ineligible participant to have funded salary deferral contributions. Since the plan does have a safe harbor match, must a safe harbor match be provided to this ineligible employee?

Thanks.

Yes. 

Just curious, if the plan's sponsor does not change the plan, what correction should the plan's administrator (even if both sponsor and administrator are the employer) implement?

That's an interesting question! Under RP 2021-30, Section 5.01(2)(b), "A plan does not have an Operational Failure to the extent the plan is permitted to be amended retroactively to reflect the plan's operations..." 

So, since this is eligible for retroactive amendment under Appendix B, I don't see it as an Operational Failure. (I'm also assuming this employee is not an HCE.)

I'm not confident that this can be corrected under 5.01(2)(d) either, as this appears to specify that it is an amount that is credited on behalf of a "participant or beneficiary" - and this employee, absent the corrective amendment, is neither. So, the other alternatives would appear to be to refund the deferrals to the employee, or, to forfeit the deferrals and use them reduce the employer contribution to the plan - and make the employee "whole" outside the plan through payroll. Either way, the plan ultimately ends up in the position it should have been in absent the error. Personally, I'd favor the refund...

I'll be interested to see what other folks come up with.

P.S. - FWIW, my original answer above assumed that the corrective amendment was being made.

If the mistake is not ratified:

Consider that the employer might owe the employee her past-due wages with interest.

That interest might be at a rate State law specifies for late payments of wages, a rate for obligations, or some other measure of interest.

Belgarath -- Why does the plan sponsor have to provide the match to the early entrant? I don't read 2021-30 as requiring the corrective amendment to cover both the deferral and match. Suppose the plan has an eligibility service requirement for both deferrals and match.  If the plan sponsor amends the plan to allow the early entrant to become a participant only for purposes of deferral contributions, that employee would not be entitled to the match until s/he completes the service requirement.  I would think that the plan sponsor can now self correct by forfeiting the match.  Am I missing something?

Could be I'm missing something. Since it is a safe harbor match, which has no allocation requirements, I just feel like it is safer to waive eligibility for both if you are going to let them in early for deferrals. But your way may be fine. Typically, at least in most of the plans I see, eligibility for deferrals and SH match is identical.

If the entry requirements are different you have to run an ADP/ACP test.