one employee in two unrelated employers plans.

[Moe Howard]

During 2003, Mr X defers a total of $ 22,000 into two separate employer 401(k) plans. The two employers are unrelated. The $22,000 is comprised of $12,000 into one plan and $10,000 into the other plan.

It is my understanding that since the two employers are unrelated, then there is no IRS nor ERISA rule which requires either plan document to have any wording regarding distributing excess deferrals in such a situation like this.

So am I correct in thinking that the employee has the full responsibility for dealing with this excess dereral matter (in other words he cannot force either employer to distribute the excess now, nor issue him a corrected W-2, nor detemine the amount of investment income attached to the excess deferral when the excess deferral is distributed to him upon retirement) ?

So the employee has to report the $10,000 as taxable income on his 2003 Form 1040 without the support of a corrected W-2 and when the employer(s) do distribute the $10,000 to him (say 10 years from now) then the employee wil have the duty to report the $10,000 again as taxable income (wihhout the assistance of an employer provided Form 1099-R that shows the $10,000 as taxable) and determine, on his own, the amount of investment income attached to the $10,000.

Any thoughts ?? ...... thanks !

[Guest Mr. X]

I didn't defer nothin'!

[Harwood]

Although it may not be required, all documents I have seen do deal with the issue of excess deferrals caused by employment with two or more unrelated employers.

In your [theoretical?] situation, all it takes for a solution is for one of the documents to have a section dealing with the subject.

[jquazza]

All the plans that I've seen have language authorizing refunds for 402(g) violation. In your case, there are no 401(a)(30) violation (since the participant didn't exceed 402(g) in any of the plans, so that the sponsor really should be off the hook as far as plan disqualification issues and liabilities are concerned. The participant should request the distribution of the excess from either plans with attributable earnings. If the distribution is done by April 15, he will avoid the double taxation.

[Moe Howard]

iguazza, I read you load and clear ... thanks. But what if both plan administrators say that their plans are not required to distribute any excess deferral because there is nothing in their plan documents that says anything about distributing excess deferrals that result from an employee's participation in another separate unrelated 401(k) plan ?

[mbozek]

Then the employee is taxed twice on the excess, once in 2003 and again in the year it is distributed. It is the employee's responsibility to know what the maximum deferral is for each year and not just elect maximum salary reduction every time he switches employers.

[Guest mmc]

In the event of a 402(g) violation due to deferrals to unrelated employers, the plans I have dealt with leave the decision to the participant as to which plan returns the excess deferrals.

The excess amount is not reported as wages on the W-2.

If the corrective distribution is made by the April 15th deadline, the excees deferrals are reported as taxable in the calendar year in which they were deferred and the allocable earnings are reported in the distribution year. Two separate 1099-R forms must be issued.