Rollover into plan before becoming a participant

So, plan allows rollovers into the plan by participants only. Employee rolled money into the plan 2 weeks before entry date.

Operational violation. I would almost swear I saw something that essentially said, "don't worry about it" but I can't find anything like that. Maybe it was just a pleasant daydream...

This is an audited plan. If it weren't, I'd be very inclined to ignore it. Although I think it could be corrected via a retroactive corrective amendment, the plan sponsor obviously doesn't want to go that route.

Am I missing an acceptable alternative to the two choices above?

3 minutes ago, Belgarath said:

Although I think it could be corrected via a retroactive corrective amendment, the plan sponsor obviously doesn't want to go that route.

Why? Because that’s the solution. 

Take a look at Notice 2023-43 and see if this can be considered an Eligible Inadvertent Failure under the Self Correction Program.

If there is no whiff of discrimination and if there were established policies and procedures in place and this one slipped through, then that may be good enough.  Having the plan sponsor make a corrective amendment that allows this particular individual to come in early could be included in the SCP documentation if the plan sponsor wants to cover themself formally.

Thanks to you both. Bill, because they don't want to amend the plan to allow this provision if they don't have to - their board is difficult on such issues. But I would do the amendment to cover this one participant, as Paul suggests. This plan needs to be squeaky clean, which is why I wanted to make sure I wasn't missing something  else.

Yeah, nobody wants to make the participant surrender two weeks' worth of ill-gotten gains!  ?

Rather than amending the plan to legitimate only the troublesome rollover contribution, might the plan sponsor consider widely allowing a rollover contribution even if the employee has not met the age, service, and other eligibility conditions for a nonelective contribution, matching contribution, or elective-deferral contribution?

Among other factors to consider:

An advantage would be removing a fact-checking or decision about which the plan’s administrator or its service provider sometimes might err.

A disadvantage could be that a rollover contribution might increase a count of participants with an account balance, which might matter for whether the administrator must engage an independent qualified public accountant.

Likewise, a count of participants with a nonzero balance might matter for one or more other purposes.

2 hours ago, Belgarath said:

Thanks to you both. Bill, because they don't want to amend the plan to allow this provision if they don't have to - their board is difficult on such issues. But I would do the amendment to cover this one participant, as Paul suggests. This plan needs to be squeaky clean, which is why I wanted to make sure I wasn't missing something  else.

Paul was more specific, but a corrective amendment for that one person is what I meant because I thought that's what you had said.

On 4/26/2024 at 2:37 PM, Peter Gulia said:

Rather than amending the plan to legitimate only the troublesome rollover contribution, might the plan sponsor consider widely allowing a rollover contribution even if the employee has not met the age, service, and other eligibility conditions for a nonelective contribution, matching contribution, or elective-deferral contribution?

Hi Peter - no, this is not an option. Or rather more accurately, it is an option, but the employer does NOT!!! want to allow this in their plan. Plan already subject to audit, so that isn't a consideration anyway.

I'm sure the corrective amendment will be the option chosen...