Correcting Plan Eligibility Errors With QNECs
Plans that make such an error can correct the error through the Voluntary Correction Program or the Self Correction Program of the IRS Employee Plans Compliance Resolution System (EPCRS). The correction would require the plan to make a Qualified Non-Elective Contribution (QNEC) equal to:
- 50% of the average deferral percentage of the employee’s class (either highly compensated or non-highly compensated) plus
- The matching contribution that the employee would have received had the employee made 100% of their pre-tax deferrals (e.g. the matching contribution is not adjusted by a 50% factor, similar to (1) above).
Corrections for “after-tax” contributions are based on 40% of the after-tax contribution (employee compensation times the average contribution percentage for the employee’s class).
Plan sponsors are well advised to have a process in place to monitor that all employees who have the right to participate in the plan are given the opportunity to participate, in accordance with the plan document.
NEED MORE INFORMATION?
If you need more information regarding this or any other topic affecting your retirement plan, fill in the form below to arrange a free consultation today.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
