Missed Deferral and Catchup Opportunity

I have a 401k plan with a 3% safe harbor that has two participants that missed having deferrals for the entire 2020 year.  Their payroll department "turned them off" in the year prior because they hit the 402g limit and neglected to restart the deferrals in 2020.   

The issue is that one of the participant's would have had catch up deferrals while the other didn't.  Therefore, using the average deferral percentage to calculate the QNEC seems not appropriate for both.  I did find a newsletter online that indicated that a missed catch up should be "fixed" with a 50% QNEC.  Does anyone have any documentation that addresses this specifically?  It is not addressed in the EPCRS Fit it Guide

You knew what the deferral % was supposed to be, so you don't need to worry about ADP percentages.

Calculate how much was to come out of each paycheck and you have the missed deferral.  Your QNEC is 50% of that.

From EPCRS:

Quote

(5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50% of the employee’s “missed deferral.” The missed deferral is determined by multiplying the employee’s elected deferral percentage by the employee’s compensation. If the employee elected a dollar amount for an elective deferral, the missed deferral would be the specified dollar amount. The employee’s missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under § 402(g) for the calendar year in which the failure occurred. The QNEC must be adjusted for Earnings to the date the corrective QNEC is made on behalf of the affected employee.

They hit 415?

Or did you mean 402(g).

And don't forget, if there was any sort of match, they get the full amount of the match they would have received.

On 4/8/2021 at 11:31 AM, bhodge113 said:

I have a 401k plan with a 3% safe harbor that has two participants that missed having deferrals for the entire 2020 year.  Their payroll department "turned them off" in the year prior because they hit the 402g limit and neglected to restart the deferrals in 2020.   

The issue is that one of the participant's would have had catch up deferrals while the other didn't.  Therefore, using the average deferral percentage to calculate the QNEC seems not appropriate for both.  I did find a newsletter online that indicated that a missed catch up should be "fixed" with a 50% QNEC.  Does anyone have any documentation that addresses this specifically?  It is not addressed in the EPCRS Fit it Guide

Yet neither participant noticed there were no deferrals being withheld *for the entire year* 🤯

On 4/9/2021 at 4:09 PM, Lisa.Q said:

Yet neither participant noticed there were no deferrals being withheld *for the entire year* 🤯

This is my prime gripe with EPCRS's correction of this issue.  It leaves zero responsibility to the participant.  I ask for 5% of my pay taken out, and then nothing happens.  Free money baby!  I'm almost hoping my ER messes up...