Addressing Failure to Give all Employees the Chance to Make a Salary Deferral

The IRS says that when an employer fails to give all employees an opportunnity to make a salary deferral, one should take the following actions.

• Perform a review of the plan and its operation. 
• Review employees who received a W-2 but didn’t participate. 
• Determine if you excluded any class of employees such as janitors, cafeteria workers, bus drivers or union employees.
• Provide improperly excluded employees the opportunity to participate in the plan in current and future years. 
• Make a corrective contribution to the plan for the employees that compensates for their missed deferral opportunity.

To avoid making such a mistake in the future, the IRS suggests: 

• Understand which employees you may exclude from the 403(b) plan. 
• Provide proper notification to employees of their eligibility to participate in the 403(b) plan at least annually.