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Incorrect Corrective Distribution Amount


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Hi, we have a participant who made deferrals with 2 different plans (one of which we administer) in 2021. He contributed to Plan A (we do not administer this plan) in the first half of 2021 (until he left that company) and to Plan B (the plan we administer) in the second half of 2021. The participant is under the age of 50, so not catch up eligible.

 

About a month ago, he contacted us and told us that he exceeded the 402(g) limit between the 2 plans and sent us a statement from Plan A showing that he contributed $9,500 with Plan A. He contributed $12,000 with Plan B, so his total deferrals for 2021 were $21,500 (so $2,000 over the limit). We processed the corrective distribution for $2,000 (plus gains/losses).

 

He contacted us a few days ago saying that the statement he sent us from Plan A was incorrect. The correct contribution with Plan A (he also sent us W-2 to confirm) was actually $8,500 (not $9,500). So, the participant was actually $1,000 over the limit (not $2,000). He already cashed the corrective distribution check.

 

What would be the best course of action to correct this issue?

 

Thank you.

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I think it's an overpayment under the terms of the plan and should be repaid. I do not see a reason the plan cannot and should not accept a check for $1,000 + earnings as repayment. Just be sure to document everything and make sure whoever is responsible for 1099 reporting has all facts as well.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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