Automatic enrollment failure and terminated employees

New guidance concerning QNEC corrections can be found in SECURE 2.0 which added Code Section 414(cc) and also in IRS issued Notice 2024-2. These new rules for self correction when there is an implementation error permit a $0 QNEC to both active and terminated participants for missed deferrals if the correction is made within the "correction period" as long as the deadline to correct is after 12/31/23.  Assuming the employee does not notify the sponsor earlier, if the error occurs on 12/1/24 the plan has until 10/15/25 to correct and start deferrals and pay no QNEC but fund any missed match, and give notice. Under 414(cc) this applies to terminated employees. What if the error is not discovered until after 10/15/25 - I believe the QNEC for active employees is 25% now under SECURE 2.0 but does this apply to terminated employees since we are beyond the 414(cc) deadline or do we use the 50% QNEC under the general rule of EPCRS? Thank You!

My recollection is that the notice to participants that is required in order to use the 25% QNEC must be provided to "eligible" employees or "affected eligible" employees (my recollection also is that these terms are used loosely) -- terminated employees are not eligible employees.  The notice also requires that the Plan inform "affected participants" that they can increase contributions to make up for missed deferrals--which a terminated employee, of course, cannot do.   The language would be somewhere in 2021-30.  In addition, I think the IRS Fix-It Guide website says somewhere that "excluded employees must currently be employed" (or something very, very close to that) to use the 25% QNEC.

It seems to me the IRS Fix It Guide is not picking up the changes in IRS Notice 2024-2 the Grab Bag. The Fix It Guide states the 50% QNEC applies to terminated employees even if the error is found within 9 1/2 months. I think that is the old rule. Thanks!

I guess I should have been clearer.... I am not giving any thoughts on whether the 25% exception applies, I am just saying that it  appears to not apply to terminated employees.

If the error is found after the deadline and corrected and the notice is provided, is the QNEC 25% or 50% for terminated after SECURE 2.0?

The general rule is that the correction is a 50% QNEC unless you meet an exception (i.e., to use the 0% or the 25%).  Based on the facts, it appears that the requirements to use either of the exceptions are not met, so it seems that it should be a 50% QNEC. 

Yes I think it would be 50%. Thank you