If Salary Deferrals are returned due to 415 limits what should happen

[Guest Mr. X]

I posted my last message while you were printing your retraction, so I retract my last post.

[card]

At least this way we'll keep it on the "hot topic" list.

Time to do some real work...

card

[stephen]

So wouldn't it make sense to design your matching contribution formula to only match deferrals that are not returned due to either excess deferrals, excess contributions, or excess annual additions?

[Guest LMalone]

This may or may not apply, but I'd like to offer it. Unfortunately, I have only a hard copy of one page of this Rev. Proc. 98-22 and am not able to access the full document at this time, but the paragraph I quote below is the paragraph just before Sec. 23, Appendix B of Rev. Proc. 98-22.

Rev. Proc. 98-22 states in part that "the permitted SVP correction for failure to limit annual additions that are elective deferrals (even if the excess did not result from a reasonable error in determining the amount of elective deferrals that could be made with respect to an individual under the section 415 limits) is to distribute the elective deferrals using a method similar to that described under section 1.415-6(B)(6)(iv). Elective deferrals that are matched may be returned, provided that the matching contributions relating to such contributions are forfeited (which will also reduce excess annual additions for the affected individuals). The forfeited matching contributions are to be placed into an unallocated account to be used as an employer contribution in succeeding periods."

[Guest]

that's a good cite, but you should be using 2000-16 which replaced the Rev procedure you quoted. it is still the same quote. (.08 of Appendix A corrections under SVP)

the term 'forfeiture' takes on a different meaning meaning than what I would normally use - or at least that I am used to. the ee 'forfeits' the match, mentally for me it is 'ee doesn't receive that portion of the match, rather it is held in suspense and allocated at a later date to others'

so if your document says return deferrals first, you don't have to return the entire amount in deferrals above the 415 limit but just enough so that when the related match is put in suspense there is no 415 violation.

......

on an unrelated issue:

what I find even more fascinating in 2000-16 is

Section 6 correction principles and rules of general applicability

.02 6 (B) Delivery of small benefits

If the total corrective distribution is $20 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable costs of processing the distribution would exceed the amount of the distribution.

[Guest RosemaryR]

You have to be careful to return deferrals and forfeit match only to the point that the 415 limits are satisfied. If you return enough deferrals to satisfy the limit, then forfeit the match, you will be below the limit.