However, under Revenue Procedure 2013-12, the missed match contribution now need not be a QNEC
, which requires immediate vesting, withdrawal restrictions, and an inability to fund with forfeitures, unless the plan is a safe harbor 401(k) plan.
To illustrate, if an employee is excluded from the ability to make catch-up contributions during 2007 (when the catch-up contribution limit was $5,000), the missed deferral is equal to $2,500 and the missed deferral opportunity (and therefore the required QNEC
) is $1,250.
Since the law allows discrimination within the NHCE group of employees, employers might design a QNEC
targeted at only certain members of that group.
Under the safe harbor, if correct deferrals begin by the first payment of compensation after the earlier of this date or the date the plan sponsor is notified of the failure by the affected employee, a QNEC
will not be required.
Plans that choose the QNEC
method have until December 31-i.e., the end of the year following the plan year-and they pay no excise tax.
The proposed regulations eliminate the ability to accelerate deductions, restrict the use of "bottom up" qualified nonelective contributions (QNECs
) as a way to pass the discrimination tests with minimal contributions and reflect a decade of statutory changes.
That same dollar amount must be contributed as a QNEC
to the plan and allocated based on compensation to all eligible NHCEs; any matching contributions and earnings related to the excess contributions distributed to the HCEs are forfeited.
Although a 3% QNEC
to all NHCEs will satisfy the Sec.
401(k)(12)(C), mandates a minimum qualified nonelective contribution (QNEC
The IRS stated in the EPFD that it was not intended that these long-standing plan designs @e.g., different contributions for different profit centers or based on matching contributions and QNEC
formulas in Sec.
If an employer has a group of employees that is separately definable by a job classification and that has a very low rate of pay, the plan can be written to permit a QNEC
for this group of employees.
* For purposes of the SVP correction for the exclusion of an eligible employee from participating in a cash or deferred arrangement or making employee contributions, the required QNEC
is treated as an elective deferral or employee contribution for purposes of any match on such amounts.