Search the Community

Mid-size 401(k) Plan (773 Participants) had ADP and ACP Testing done in late February 2020 for 2019 calendar year. Plan did fail testing and remedial distributions were paid timely to correct failure. Subsequent review of participant accounts found that Compensation and Deferrals Values provided by the Client's payroll system were wrong! Corrected values were finally provided (August 2020, delays were related to "COVID impact" at Client), so testing was rerun. End result is that testing results were improved for both ADP and ACP; therefore, remedial distributions paid were in excess of amounts defined by corrected testing. It is my understanding that the Plan Sponsor is expect to collect the over payments, and return those monies to the accounts of the impacted people. (Amounts range from $2 to $100.) Questions are (1) is this correct, (2) how would this be done, and (3) how are taxes impacted/addressed by these refunds to the Plan? Any assistance is most gratefully appreciated!

Hey Y'all! Quick question for my fellow practitioners. I am studying the DC-2 book to eventually get my QKA and I came across a sentence saying that corrective distributions (ADP & ACP corrections) are subject to 10% withholding unless the participant completes a Form W-4P. I was wondering who all was practicing this? I don't recall ever seeing a corrective distribution with any withholding applied in my short tenure. Thanks in advance!!

The auditor is insisting we report the corrective distributions (for the 2014 plan year, corrected on 3/1/2015) on the Schedule H in the same manner they are treating these distributions in their financial statement. Specifically, the auditor wants us to - 1. Report these corrective distributions as a payable at 12/31/14 for excess contributions paid in the following year. We are to list them on line 1j(b), Other liabilities. 2. Reduce the Participant contributions reported on line 2a(1)(B) by the amount of these corrective distributions because their best practice is to reduce employee contributions because these were not eligible contributions. The audior says these contributions are required to be remitted back to participants and therefore were not actual contributions in 2014. 3. Not report the corrective distributions on line 2f, on either the 2014 or 2015 Schedule H, because the participant contributions are being reduced by this amount. The auditor will add a footnote to the financial statement describing this activity. I know the Generally Accepted Accounting Principles (GAAP) the auditor uses for the financial statement wants the corrective distributions handled this way, but I never heard of the Schedule H being completed in this manner. Has anyone come across this situation this year? If you have, how did you handle it with the auditor and the client?