Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Over the next few weeks 401kBasics is going to review the common mistakes that plan sponsors make in administering their plan, how to find the mistake and how to correct the mistake. The sixth common mistake is failure to make sure all eligible employees identified were given the opportunity to make an elective deferral election.
- How to Find the Mistake: Review plan document sections on eligibility and participation. Check with plan administrators to find out when employees are entering the plan.
- How to Fix the Mistake: Employer must make a qualified nonelective contribution (QNEC) to the plan on behalf of the employee that compensates for the missed deferral opportunity. The correction programs available include SCP, VCP and Audit CAP, depending upon the situation.
This mistake can be avoided in the future by monitoring census information and applying participation requirements. For more information please refer to potential mistake number 6 on the IRS 401(k) Fix-It Guide.
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