missed deferral opportunity

I have a sponsor that changed payroll systems in 2021.  As a result of that change , overtime was not calculated correctly in 2021 through 2023 for a group of participants.  Sponsor self-discovered the error in late 2023 and paid this group of employees back pay on a separate 10/20/2023 payroll.  The plan is a 401(k) deferral only plan covering only collectively bargained employees.  The plan does not include an automatic contribution arrangement.

According to their plan document, the back pay is eligible compensation/allocation pay.  The sponsor did not take elective deferrals for this separate payroll. We didn't learn about this issue until after 1/20/2024.  No notice has been provided to the affected participants.

I'm trying to figure out if there is a way to turn this into a notice only or zero QNEC correction.  My conservative view is that correct deferrals began with the payroll following 10/20/2023, which would have started the 45 day clock for a notice only correction.

Thoughts?

The operational error of miscalculated overtime pay started in 2021, so that is going to drive the determination of available correction methods for the entire sequence of MDOs.  The back pay on 10/20/2023 was a correction of the previously unpaid compensation.  The notice was due within 45 days of starting correct deferrals which it sounds like overtime was calculated correctly going forward from 10/20/2023.  That should have started the 45 day notice period.

You are the service provider and not the plan sponsor.  I can't see arguing that the 45 day notice period starts when the service provider learned about the issue.

Note, the 45 day time period does not by itself excuse the need for a QNEC.

SECURE 2.0 section 305 and Notice 2023-43 liberalized the time frames for self-correction of Eligible Inadvertent Failures which the plan will have to determine whether this failure meets the criteria for being an EIF.  One of the criteria considers the number of participants that are affected (either by count or percent of the population).

Consider taking a closer look at Notice 2023-43 to see if the facts of the situation could justify self-correction.  There may be an argument for using a 25% QNEC versus a 50% QNEC.

Fortunately, there is no match involved.