ineligible contributions

[Guest lidmann]

employer sends contributions, employee and employer, for an employee not eligible to participate yet. the funds have been in participant's account for a month. how should this be corrected?

[Guest derek]

The correction really depends. I know from a VCR standpoint, Joyce Kahn of IRS is requiring the amounts (or at least the employee contributions + allocable earnings) to be disgorged from the plan. I'm not sure of the employer portion. On the other hand, most CAP coordinators are allowing ineligible amounts to remain in the plan, if they are small and are related to a participant who is ineligible for a short period of time (i.e. 1-3 months). You might check out the Reish & Luftman web page (see the Q&A column for IRS corrections for the link) - they deal with all sorts of corrections and methods.