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Is Blinky OK?

You need to worry about 415 proration when you have a Short Plan Year of less than 12 months, not when someone enters on a day other than the first day of the Plan year and is a participant for less 12 months.

This is the explanation that we are providing on Form 5500-SF, line 11b: [x] No. Other. PBGC Notification is not required yet because the Funding Deadline is January 1, 2021.” .... Jeff

Write them a letter asking them to indemnify you for any services you require with respect to this transaction and reimbursing you for any fines or excise taxes the IRS may impose due to their error in over paying you. Also ask for a full accounting of how they arrived at the figure in question.

Belgarath correctly cites FAB's 2009-02 and 2010-01 as the background and recitation of the rules involved with this issue. There is no expiration time clock. Such contracts (or custodial accounts) have to have had no employer activity since before 01- 2009. That means no loan payments, no contributions, no discretionary decisions of any kind made by the plan sponsor concerning these contracts. Although not specifically required, most of such contract holders are usually terminees, so I do not understand the conversation about reporting them as a distribution now. That should have happened some time ago. And if the Participant is still employed, I don't think you have a distributable event. If these contracts (or custodial accounts) are excludable, the assets are also excludable (See Q.6 of 2010-01) I would not ask the auditor to tell you how to handle this. At 115 total accounts, with 15 excludable contracts, the auditor may be out of a job if the employer elects to exclude these contracts. This is a big price tag for your client and well worth working on. We (QBI, LLC an Ascensus company) use this whenever it is appropriate. The most common situation in which this applies in our book of business is old TIAA individual annuity contracts. These contracts have Participant control without requiring the plan sponsor to make discretionary (or any) decisions. So as long as contributions, etc ceased prior to 01-01-2009, these contracts can usually be qualified for this exemption.

Research the deadline for refunding excess deferrals.

What you should do is talk to them. They do owe you some explanation of how the amount was computed. There is an excellent chance you owe the funds and you have funds in your IRA that shouldn't be there. You should also ask them for help in getting the money transferred from the IRA to the plan that doesn't generate a 1099-R from the IRA. You shouldn't be taxed or have to pay any kind of penalty for giving back money. If you don't get to keep the money why should you pay taxes on it? While the fact they made a mistake doesn't relieve you of the duty to pay back the money it does put some burden on them to help you make the correction as painless as possible. So start with communication.

You're welcome.

@401 Chaos Which part of the 125 NDT are you concerned about? The uniform election component of the contributions and benefits test is the most commonly addressed piece on that front. In that case, it simply prohibits a larger employer contribution for an HCP than made available to a non-HCP eligible for the same plan option. If I understand the situation correctly, that's not going to be a concern here because there are different plan options at issue. Also, most interpret the rules the permit the employer to create separate cafeteria plans with different contribution strategies for each division within a controlled group. I've written about that here if you're interseted: https://www.theabdteam.com/blog/nondiscrimination-rules-for-different-health-plan-contribution-structures-2/ What they should be worried about is the indefinitely delayed set of fully insured plan nondiscrim rules from the ACA. Those would likely be a problem here if they ever see the light of day. Summary here: https://www.theabdteam.com/blog/cadillac-tax-fully-repealed/

@KdGal That's arguably more of an cashable flex credit than an opt-out credit, but it doesn't really matter. Either way, the cash option is always standard taxable income. That's the whole reason we have Section 125 in the first place--as a safe harbor from the doctrine of constructive receipt of the taxable cash option for those who elect the non-taxable qualified benefits. I've got a summary of those rules on slides 5-6 here: ABD Office Hours Webinar: Section 125 Cafeteria Plans Summary of the opt-out credit and flex credit affordability concerns here: https://www.theabdteam.com/blog/how-the-aca-affordability-increase-to-9-83-affects-employers/ If you want to go direct to the source, I recommend the IRS "Potluck Guidance" in Notice 2015-87: https://www.irs.gov/pub/irs-drop/n-15-87.pdf Lots of discussion there about the opt-out credits and cashable flex credits as taxable income (and more significantly, how they affect ACA affordability).

That was 5 years ago. I don't remember what I was doing 5 hours ago.

You people seem to be over thinking the example in the details and are missing the main point. I find the idea that my compensation will be in part based on if I do behaviors my employer approves outside of work odd at best and offensive at worst. Who are they to judge if my idea of hobbies, ways to better myself, deciding to own a pet, other lifestyle choices I make.... are worthy enough of their approval seen by given cash to people? Just pay people and they can spend THEIR money as they see fit and stop making me go and find out if my employer approves of my spending/lifestyle or not. To get real blunt (if I haven't crossed that line already) I would find this benefit a negative. I might not refuse to work for an employer that offered it but if I was making a list of good and bad things about the company as I was making a decision to work for them this would be on the bad list. It points to the idea they are too paternalistic. I don't mind a boss but I don't need nor want a new parent.

or it could simply mean that is the way the auditor learned it (incorrectly) and it is awful hard to unlearn things, I prefer to give people the benefit of the doubt. if not, and they are just being pig-headed, then the line from The Holy Grail seems appropriate "You don't frighten us, English pig-dogs! Go and boil your bottom, sons of a silly person. I blow my nose at you, so-called Arthur King, you and all your silly English k-nnnnniggets"