Only "Ignore" is allowed for selection by group or type

What causes this issue?

You specified restrictions for user group or user type in the selection
criteria.
This is only permitted if you select the "Ignore Objects" option for the
users that exist only in the directory.

System Response

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

How to fix this error?

Procedure for System Administrators

Error message extract from SAP system. Copyright SAP SE.