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9/11/2019

Can part of the 401(k) be refunded as excess annual addition to make the correction? I realize you can't make the correction because funds have been distributed but I would think you could use similar to procedures like what happens when a Plan fails the ADP test after an HCE takes a total distribution. Something like send a letter to the affected participants that you received a distribution of $Y but that $X portion of their distribution is an excess annual addition and not eligible for rollover. If $X has been rolled over they must withdrawal it form their IRA along with earnings as an excess IRA contribution. Failure to do so will result in 6% excise tax each year they remain in the IRA. Issue two 1099-Rs one for ($Y - $X) with the normal code for distribution chose, and one for $X with Code E for the excess annual addition. Assuming the Plan has language to refund employee contributions first on excess annual additions. Or am I missing something?

I don't think the rule is as black/white as you think. Personal experience is that most view this as a change in actuarial firms. The instructions state "Complete Part III if there was a termination in the appointment of an accountant or enrolled actuary". An "accountant" has never been interpreted as an individual as accounting firms often change the entire audit team each year and I think the same argument can be made for the actuary. I have seen some firms report internal changes, but I don't think it is very common. 1) No issue because the filing is not incorrect 2) No liability on your part. The service agreement is with the firm, not the individual actuary. Once you left the firm, you are no longer responsible. 3) If you retained the work at a different firm, I would show that as a change. However, this brings up an interesting question for small plan land. TPAs that outsource actuarial work and hire independent people to review their work. I guess I feel a little differently if the TPA changes from basement actuary A to spare bedroom actuary B. That feels more like a change of actuary even though both might have signed using TPA's address and firm name. I was assuming you left one actuarial firm for another, but if you are an independent signing stuff for a TPA, I might have a different opinion. Probably matters what your engagement letters say.