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Deferrals made to Profit Sharing Plan (not 401K Plan)


LauraERPA

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A former Profit Sharing Plan client recently returned as his new TPA refused to assist in an IRS audit. While away, the new TPA amended the Profit Sharing Plan effective 1/1/2015 to add 401(k) Safe Harbor provisions.

  • Maximum Deferrals made by 2 HCEs were incorrectly deposited to the profit sharing plan's trust in December, 2014.
  • 2014 W2s reflected the deferrals.
  • Deferrals were then distributed in March, 2015.
  • New TPA reported the distribution (no tax withholding) via 2015 1099Rs (coded P) in January, 2016.

Was this the proper correction? Shouldn't the deferrals have been returned to the employer to run through payroll with proper tax withholding and correction of W2s?

Does the cross over to a new year change the correction method? Is a VCP submission required for failure to follow the plan document?

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