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Also remember that limit only applies if the cash balance plan is NOT subject to the PBGC.

Although not recently, we used to see mistakes where Plan A contribution was mistakenly deposited into Plan B. The solution was simple: just transfer it to the correct location/trust. If you need an adjustment for earnings, make a reasonable estimate and do it. But do it immediately, and document it completely.

Any way to amend the trust so that a single trust holds both plans assets rather than moving dollars? I would have legal counsel opine because I don’t know that it can be done after the fact. But we do know it can exist.

You say he's a participant, but you also say he's excluded from the plan by name. Why is he being deemed a participant? Because if he's really NOT one, then the THM would not apply. That's different from being eligible and just not accruing anything.

Additionally, practitioners should note that the 80/120 rule is administrative and regulatory in nature. It is NOT a statute; thus, not appropriate to assume its application extends to anything else.

Among some practical ways to evaluate whether a business’s facts would meet conditions for a credit is to use Form 8881 and its Instructions. https://www.irs.gov/pub/irs-pdf/f8881.pdf; https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit Instead of waiting to prepare a tax return on the facts of a concluded tax year, some accounting firms can run a projection on a set of assumed facts.

In the days before computers we lawyers would have two stacks of deposit slips in the desk drawer, one for the office account (earned fees) and one for client/escrow funds. Normally the banking would be handled by an office manager or a secretary and on occasion the wrong deposit slip would wind up putting money into the wrong account. As soon as we realized what happened we moved the money to the correct account, not stealing a dime, and life went on. Then we and the bank got computers. If we put escrow money into the office account and a check drawn on the escrow account overdrew that account, the bank was required to instantly notify the Grievance Commission and we would be investigated. We could not correct the problem quickly enough. What procedures did we follow? How could this have happened? What training did the secretary have? (One firm was forced to fire it's computer illiterate secretary.) What policies had we adopted and how would they be amended? What was out motivation? Were we stealing client money? Let's examine your records for the past three (3) years. If it happened more than once we might be sanctioned, from a slap on the wrist to a brief suspension (unless you really were stealing), and those sanctions would result in an increase in our malpractice insurance coverage. So I feel your pain. By all means call your lawyer who will tell you exactly what you colleagues have suggested in this post. Go to Confession. Say the Al Chet.

Yeah, the times I have seen this error we didn't put this much thought into it. We got the money moved to the correct plan. If we thought it was material there was some earnings transferred. I have to admit I don't recall any of these plans ever getting an IRS or DOL audit also. But at times the KISS Principle works.

And, beyond tax-law corrections, an eligible correction under Labor/EBSA’s Voluntary Fiduciary Correction Program (because the Treasury/IRS lacks authority regarding ERISA title I fiduciary breaches). Expenses for a correction should be the personal responsibility of the breaching fiduciaries.

I assumed 22% because it is a default Federal income tax withholding rate for a supplemental wage payment. Whatever the withholding for Federal income tax, the key to the solution is recognizing that the $765 withheld for OASDI and HI taxes counts in the employee’s Federal income tax wages, and so might bear some withholding for Federal income tax. Whatever the tax withholding is constrains the remaining net pay available for an elective deferral. A regular pay likely would involve more complexities. And a Roth deferral would add another layer of complexities. Some employers set ordering rules to (1) account for all required or instructed tax withholdings; (2) account for garnishments; (3) order the kinds of amounts taken from pay (for example, taking a payment for health coverage before a contribution to a retirement plan); and (4) not allowing a period’s or supplemental wage payment’s net pay be less than $0.00 (or $1.00). If an employer engages a payroll service provider, some have rules and controls of these kinds in the software. This is not advice to anyone.

Agree with your suggested solution but also strongly suggest some formal legal guidance which could also ascertain risk. I would not "cheap out" given the size of the assets. Other key thoughts: who made the mistake, when did it occur, when was it discovered, and how soon thereafter was it corrected? Was this one big errant transfer or a series of errant transfers? Were they caused by honest clerical errors or was someone asleep at the wheel not paying attention. Was this the plan sponsor's doing or a third party? Documenting all that and fixing ASAP at a minimum is what I would suggest - put the plans where they'd be had the mistake(s) not occurred. Maybe a VFCP filing would be appropriate. My only formal advice here - get qualified legal guidance.

If a participant specifies a 100%-of-pay elective deferral, many employers and plan administrators interpret a plan to restrain such a deferral to what’s available after required withholding. Here’s a simplified illustration, assuming no tax beyond Federal taxes, and assuming nothing else taken from the worker’s pay: Pay before any withholding $10,000 Withholding for OASDI tax $620 Withholding for HI tax $145 Net pay after withholding for wage taxes $9,235 Federal income tax withholding (22% x $765) $168.30 Pay available for elective deferral $9,066.70 Elective deferral $9,066.70 Net pay $0.00 I’m not aware of a particular statutory authority. Some might follow a principle that what otherwise would be a contract promise or obligation that would require a person to disobey applicable public law is legally unenforceable. This is not advice to anyone.