415 Refunds and Excise Tax

[Guest CHRISTA]

Hi - I have a plan year-end 9/30. The plan failed the 415 test. Two participants are getting refunds (one participant is getting just employer match money and the other is getting employer match and employee deferral). All of the money will be refunded after the two and half month limit. Does the company owe excise tax on the refunds even though it's the 415 test they failed?

THANK YOU!

[stephen]

There is not a excise tax for 415 refunds paid after 2 1/2 months following the plan year. (There is an excise tax for ADP/ACP refunds.) However, please note the participants must get the associated gains returned to them along with the refund.

Why are you returning employer match due to 415? I have seen plans return deferrals (with associated gains). However, the associated matching contributions are generally put into a suspense account and used to reduce future matching contributions.

[Guest CHRISTA]

The plan is a takeover from another TPA. The TPA did the testing and since we now hold the assets I have to process the refunds. Thanks for your help!

[jaemmons]

I agree with Stephen. You need to look at the document as to whether or not refunds correct 415 violations. The only amounts you can refund, if the document allows for it, are employee deferrals. Any employer monies that cause the participant to exceed the 415 limit are forfeited and held in suspense for future usage. These monies are benefits that the participant is NOT entitled to receive and refunding these monies back to them will cause the plan to violate IRC 401(a)(16) which is a qualification issue.