When an eligible participant who is supposed to have the opportunity to defer is not allowed to do so, the plan may have a Missed Deferral Opportunity (MDO). In many cases, this type of error requires a formal correction.
What is a Missed Deferral Opportunity?
A Missed Deferral Opportunity occurs when a participant was eligible and either elected (or would have been automatically enrolled) to defer into the plan, but an administrative error prevented their deferrals from being processed for a period of time. Please note, MDOs only apply when employee deferrals are not withheld properly from the employee’s paychecks. This does not apply when deferrals are withheld but simply not deposited timely, as this would follow a different correction process.
To fix this, plans typically need to calculate the missed employee deferrals and/or any missed employer contributions, including lost investment earnings. These correction amounts are then deposited into the participant's account as a Qualified Non-Elective Contribution (QNEC).
Some common examples of this are:
- An employee is not added to the plan prior to being eligible
- The plan has an hours requirement for eligibility, and the required hours are not entered timely leading to the employee to not being marked eligible in time
- An employee is marked eligible, but their deferral deduction is not added to payroll timely causing a delay in their contributions
Why is it important to correct an MDO?
Correcting an MDO as soon as it’s identified can help minimize both financial impact and compliance issues. Depending on the timing and the plan’s design, the necessary correction may include:
- A QNEC to replace some or all of the missed employee deferrals
- Missed employer matching or non-elective contributions, if applicable
- Lost investment earnings on impacted contributions
What should you do if you think an MDO has occurred?
If you believe a participant may have missed deferrals, please begin withholding their elected deferrals as soon as possible and contact us. Our team may request additional details from you to help determine whether a correction is required and guide you through the next steps.
Please note that fees may apply for MDO calculations and processing.