cmick

Lou S., we would be giving the participant back the money, on the basis that the employer should have shut off the loan payments for loan 1 since the participant did not request extra payments be made on loan 2. Correcting an administrative error would be the ultimate basis for return, if we go that route. HR for me, the loan provisions only state that payments must be made at least quarterly based on a level amortization schedule, which I guess could be interpreted to mean that the participant should not make extra payments. However, historically we've taken this to mean that participants must make at least payments on that schedule, and we have allowed participants to make extra payments on their loans.

There is a participant who took out two loans. Loan 1 was paid off in the spring of this year. The loan payments were never stopped, and thus applied to the second loan. The participant recently noticed and would like the months of extra payments returned. Would this fall under one of the acceptable categories to take money out of the plan and return to the participant?

Thanks for the answers. Kevin, I suppose the employer could make an argument for mistake of fact, but I'm not sure how acceptable the IRS would find the argument. In prior years a larger profit shairng contribution was required to satisfy non-discrimination testing. So the employer deposited enough money to satisfy the requirement in prior years, however, when less money was needed, the employer decided to withdraw the excess that had been contributed.

Hi, An employer deposited more money than necessary into the plan for a profit sharing contribution, and then decided to simply take the money out of the plan. It was money in the holding account, and had not been allocated to the participants. However, it still shouldn't have come out of the plan. Does anyone know what the penalty is for this? Thanks!