PS plan (no 401(k) feature) had an ineligible person receive a contribution. Ineligible due to census error where he was listed as having more than 1000 hours - but a year later client discovers that they botched it. So employee never satisfied initial eligibnility requirements.

Based on 2.07(b) of appendix B in Rev. Proc. 2003-44, it's clear that one option is to retroactively amend to include this employee. But that would also bring in a bunch of others, and is obviously not desirable.

The specific guidance in 2003-44 is heavily weighted toward 401(k) plans where there are elective deferrals. I'm trying to convince myself that this error can simply be corrected under SCP by placing the money into a suspense account and using it to reduce this year's contribution. And although it seems reasonable, there's an ingrained fear that taking something away from an employee, even though he never should have participated in the first place, might be viewed unfavorably by the IRS. Anybody have any specific experiences with this type of problem?

I attended a seminar today and this issue was discussed. The presenter said that you can retroactively amend to include only certain individuals. He also mentioned that he has amended to include a specific participant by name. That seems discriminatory to other who haven't yet joined the plan. I would think that the IRS would view an operational failure as more of a problem than forfeiting money from an ineligible participant. In my experience, we always forfeited employer money for participants who entered the plan to early (and returned deferrals).