I have a client who failed their nondiscrimination deferral percentage test in their SARSEP for 2006 plan year. Do they have to refund the excess or can they make a QNEC to get the NHCE's percentage high enough they can pass? Any help would be greatly appreciated!!

Once, I looked at EPCRS Rev. Proc. 2006-27, I believe under EPCRS the SARSEP could use a QNEC to satisfy the failed deferral percentage test. A couple of other questions now, 1)If they use the QNEC, is the employer still subject to a 10% excise for not notifying the employee of the excess? 2) If they use the QNEC, that would not be considered a nondeductible contribution for the employer subject to the 10% excise tax as long as they are within their deduction limit with the QNEC right? and 3) Would the HCE be subject to the 6% excise tax on nondeductible IRA contributions?

This is messy! Thanks for any assistance!