In House Counsel

Thanks for that detail! If under 591/2, then we would need to do a corrected 1099 backing out the corrective distribution and then also issue a new 1099, with code 8 for the amount of the corrective.

Thanks! That's what I was hoping it meant, but wanted to be sure. Yes, this was a taxable distribution (not a rollover), so I don't think I even need to issue a corrected 1099-R, which would be the case if there had been a rollover.

I have a former HCE who took a full distribution of his account last year when he retired. This year we found out that we failed ACP test and need to make corrective distributions. Do we need to cut the former HCE another check? Or is this corrected by deeming last year's distribution as the correction? I'm looking at 1.401(k)-2(b)(2)(v), which says, in part: "If the entire account balance of an HCE is distributed prior to when the plan makes a distribution of excess contributions in accordance with this paragraph (b)(2), the distribution is deemed to have been a corrective distribution of excess contributions (and income) to the extent that a corrective distribution would otherwise have been required." I think I am hung up on the "to the extent that a corrective distribution would otherwise have been required." Any thoughts about what that language is supposed to mean?

We have inadvertently allowed employees to make pre-tax contributions to a SEP-IRA. Is there a way to correct this problem without requiring distributions of the deferrals?

Very helpful - thanks!

We have a DB plan that inadvertently paid a lump sum to a "restricted employee" (i.e. one of highest 25 paid) without first meeting the conditions of Rev Rul 92-76 (eg putting money in escrow, pledging additional property, securing a letter of credit). Any ideas what an acceptable correction method would be?

My thinking is that this really isn't an "overpayment," since the participant is entitled to the accrued benefit, just not in the lump sum form at the time they wanted it. Since the 110% test is part of the 401(a)(4) regs, this is a non-discrimination failure. I'm thinking the best way to correct this is to try to comply with 92-76 retroactively. Putting the money in escrow probably wouldn't work after the distribution is made, but securing a letter of credit to repay if needed might work. What do you think?

Wondering if you ever got feedback on this, as I have the same question.

Thanks for the confirmation!

In 2023 the DOL revised the methodology for counting participants for the small plan audit waiver so that only account balances must be counted. Does anyone know if there has been guidance as to whether that new "small plan" definition would extend to the safe harbor for remitting elective deferrals?