The Employee Plans Compliance Resolution System (EPCRS) provides a method for plans to correct common errors that occur in the operation of their plan.  These errors generally occur when the terms of the plan document are not followed.  One of the errors described in EPCRS is what to do when an employee is improperly excluded from participating in the plan.

Under EPCRS, the plan should correct the error by contributing 50% of the missed deferral opportunity, plus any gains/losses, to the plan for the excluded employee.  In addition, any matching contribution that would have been made on 100% of the missed deferral opportunity must be made by the employer to the plan, including any gains/losses.

Generally, this correction may be done under the Self-Correction Program (SCP) portion of EPCRS.  Under SCP, the plan may make the correction and does not have to file anything with the IRS.  However, as a part of using SCP, the plan must have documented administrative procedures to help prevent such an error from occurring in the future as well as document that the error was corrected.

If you have questions about correcting the improper exclusion of an employee, please contact a Nyhart consultant.

This article was last updated on December 6, 2011