Leaderboard

W-2. It appears their W-2 indicates amounts were withheld from pay. Thanks! Okay, so we are nearly 18 months after end of plan year. Gotta figure out which 5330 Schedule.

You have it covered. The US income means the "non-resident alien" exclusion won't apply, so for testing its like any other employee.

When I was inside counsel to a big recordkeeper, I saw this problem often, especially with healthcare employers. If the § 403(b) and § 401(k) plans’ investment alternatives are identical (or nearly so) and one recordkeeper serves both plans, there might be a straightforward correction. Even if the facts allow an ERISA § 403(c)(2) mistake-of-fact return to the employer, it can be unhappy because it’s work—often four layers of computations and reprocessing—and the employer can be exposed to restoring investment breakages that resulted from the employer’s mistake. Instead, the recordkeeper corrects both plans’ records (including for each affected individual account) so every account and subaccount shows the correct number of investment fund shares. There is no payment of money, only corrections of records of beneficial ownership of investment fund shares. (I assume neither plan had shareholder-of-record ownership.) Done methodically and thoroughly, all records will remain in perfect balance. Employers instructed these records changes without seeking any IRS approval. Of those that later attracted attention (in the 1990s there was a wave of IRS audits of big healthcare systems), the IRS accepted what was done. For most, the IRS examiner without hesitation accepted what was done. For a few, I persuaded the examiner or supervisor that an employee could not have an elective deferral under a plan to the extent she was ineligible to so participate, and that the employer could not have made a contribution allocable to what could not have been an elective deferral. Under equity law, a person or entity does not keep property if it in good conscience belongs to another.

Were the deferral elections completed for the correct plans, and employer then just sent funds to the incorrect plans? Or were they given deferral elections for the improper plans? If the former, I'd consider it a mistake of fact. If the latter, then I'm not so sure, I've had no direct experience with that specific situation. Under the facts and circumstances, is this either insignificant or significant within the SCP period? If you have to (or choose to) go through VCP, I'd certainly try for a reasonable fix - in that respect, I've found the IRS to generally be very reasonable. I personally wouldn't get too hung up on the fix-it guides - they are handy, but by no means the only allowable solutions. Possibly some re-do of ADP/ACP testing might be necessary - results could be very different. I'll be interested to see if anyone has direct experience with an identical situation - maybe it is more common than I think.

Never mind. I just answered my own question. 10% ownership kills this transaction! Good thing it hasn't happened yet! (H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or (I) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).

Sure sounds wrong to me; the employer should be asked why it is reflected that way. Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you're required to file a tax return, don't include child support payments received.