Tip of the Day
By Stephanie Reagan
We have more good news coming out of the IRS regarding ways to correct plan errors! Rev. Proc. 2015-28 provides for new safe-harbor correction guidelines under EPCRS for corrections relating to employee missed deferrals and automatic enrollment missed deferrals of 401(k) and 403(b) plans.
The new procedure revises Rev. Proc. 2013-12 and significantly reduces the amount of corrective contributions under the EPCRS' safe-harbor correction methods if a participant's missed deferral contributions are discovered and corrected in the time constraints set forth below:
For automatic enrollment missed deferrals:
No employer Qualified Nonelective Contributions ("QNECs") on the missed deferrals are required if the failure to automatically enroll the newly hired participant or automatically increase the participant's deferral contributions is detected and corrected by the earlier of:
1. 9 1/2 months after the year of the failure (9 1/2 months after the plan year of when that participant's deferral contribution should have been deferred); or
2. The last day of the month following the month in which the participant alerts the plan sponsor (usually the employer) of the issue.
For any missed deferral:
No QNEC is required if the missed deferral occurred within the prior 3 months if the deferrals are restarted by the 1st payroll after the earlier of :
1. Three months after the deferrals were missed, or
2.The end of the month following the month in which the participant alerts the employer/plan sponsor of the issue.
The corrective safe-harbor QNEC is reduced from 50% to 25% of the missed elective deferrals if they are more than 3 months old but are corrected by the last day of the second plan year following the year in which the error(s) occurred.
Under all of the missed deferral corrections listed above, the plan sponsor must:
Notify the affected participants within 45 days of the date on which the appropriate deferrals begin to be corrected;
Make a matching contribution (if the plan terms provide for matching contributions) to the participant's account as if the participant deferrals were correctly contributed as the plan terms dictate; and
Contribute lost earnings on the contributions. The Rev. Proc. provides an alternative safe harbor for earnings calculations. The earnings can be based on the amount that would have been credited to the participant's account from the elected investment, or if no election, the plan's default investment alternative. Note that if the investment suffered a loss, no earnings would need to be credited. Fund losses can not reduce the contributions required to be made under this Rev. Proc.
FYI - Breakfast Forum: IRS's Voluntary Closing Agreement Program -- When EPCRS Just Isn't Good Enough -- Western Benefits & Pension Council, Hotel Irvine (formerly Hyatt Irvine), 17900 Jamboree Road, Irvine - Thursday, April 16, 2015 7:30 AM PDT
Presenters: Thelma Diaz, IRS VC Program Coordinator and Sherrie Boutwell of Boutwell Fay LLP.
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