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No. The IRS does have a rule for this, Lou S. See Treas. Reg. 1.402(g)-1(e)(8). The Roth excess deferrals, when they come out, are not qualified Roth distributions and cannot be rolled over to a Roth IRA. I have no knowledge as to whether this is uniformly administered correctly.

I had a similar situation about a year ago. An employer that was governmental filed a late 5500 for their 403(b) plan on the advice of their platform vendor's rep. I corresponded with IRS and told them that the employer was governmental and should not have filed. Took a few months, but the IRS abated all penalties. The Service Center person with whom I spoke prior to sending letter seemed to understand that penalties should not have been assessed if form should not have been filed. Employer has stopped filing.

Do the reallocation in a non-discriminatory manner in accordance with the terms of the Plan Document?

Not quite. EPCRS permits a plan to correct a 401(a)(30) failure, because 401(a)(30) is a qualification requirement. If the limit was not exceeded in a single plan, or within plans in the same controlled group, then there was no qualification failure and hence no opportunity to correct under EPCRS. Mechanically, the way it works is that the participant is limited to a deduction of $19,500 (assuming under age 50) on their 2021 tax return. Therefore, any amount contributed in excess of that is effectively an after-tax contribution. However, when it is distributed in retirement, it will be taxable as a normal distribution from a pre-tax account. So it will have been taxed twice - both going in and coming out.

Is something late if it's never due?

Agree with Lou--suggest you write a letter to the Service under IRC Section 6652(e) pleading reasonable cause. That Code section says "failure to file a return....required (under the various sections) " which this was not. We have not been denied in our 47-year history of filing about a dozen of these under various fact patterns.

Thanks Luke. I have no idea how either plan would possibly every track that.

I could be wrong, but this seems like the exact situation that a "reasonable cause" letter should abate all penalties. Something along the lines of "We request the late penalties be waived as the return was not required to be filed."

Does each plan allocate its amounts as of December 31? Maybe there's a technicality that the 401(k) amount didn't come first, and you could look at how that plan's document says to fix the issue (perhaps invoking EPCRS and a deferral refund).

I believe another factor is if your document has deemed cash out language in it. That is that anyone who terminates with 0% vesting is deemed to be cashed out. Therefore, if you have paid anyone who was partially vested, and anyone who was not vested is deemed to be paid out, you can probably get away with a 1-year look back. Let the ERISA attorney and the sponsor make the decision.

The Form 5500 Instructions include this: If the filing due date falls on a Saturday, Sunday, or Federal holiday, the return/report may be filed on the next day that is not a Saturday, Sunday, or Federal holiday. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2021-instructions.pdf

The 75 days might be a reasonable expression that some might defend as slightly narrower than 2½ months. 365 / 12 = 30.4167 (average number of days in a month) 30.4167 x 2.5 = 76.0418 days The tax-law rule seems to allow a plan to count some recognized kinds of post-severance compensation, even if paid later than 2½ months after the severance, if it “is paid by . . . the end of the limitation year that includes the date of severance from employment with the employer maintaining the plan.” 26 C.F.R. § 1.415(c)-2(e)(3)(i) https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(c)-2#p-1.415(c)-2(e)(3)(i) (If the plan’s limitation year is the calendar year and the plan provides as much time as the tax-law rule allows, a severance before October 17 might get a tolerance more than 75 days. A severance in the first few days of January might get around 360 days.) Is the TPA’s software coder writing her code to allow also the limitation-year alternative?

To add to Zeller, neither plan did anything wrong (unless this is a controlled group) and as such there is no EPCRS correction for either plan to enter into. Essentially what will happen at this point is she will get a 2021 tax deduction of $19,500 but will be taxed on the full $39,000 when it is eventually distributed. That is she pay taxes on $19,500 both in 2021 and the ultimate year of distribution. It's probably exactly what Zeller said so my post might just be useless duplication.

I think I've seen case law going both ways over the years if I remember right about who needed to be 100% vested and not. I believe the presumption is that anyone that has less than a 5 year Break in Service who has not previously been paid out as of the termination date would become 100% vested as a result of the termination but I believe that was successfully challenged in at least one case (I don't recall which one) and full vesting of former employee participants was not required. The exception I believe seemed to surround an employer who was dissolving operations in addition to the pensions plan and there was no potential for re-hire of previously terminated employees who did not yet incur a 5 year BIS. There is some good info in this thread below from 2004 that seems to be related to your question (I think the 2015 bump in that thread is unrelated). But I can't recall if there is more recent guidance. I know there has been a lot of guidance on partial terminations but I'm not sure about full terminations.

About (only) the ERISA fiduciary liability insurance contract: The insured fiduciary might ask her insurance intermediary to check with the insurer about whether, and for how much premium, the insurer would be willing to issue extended-reporting-period coverage. Likewise, one might ask whether that coverage could run for up to six years so it aligns, even if imperfectly, with ERISA § 413(1)’s statute-of-repose period.

Most plans are going to use the W-2 or withholding safe harbor. I would say if it's on the employee's W-2 for 2022 and if it is currently subject to FICA and FITW, you should count it as comp.