Correction of Error in Computing matching Contribution

[Guest djsimonetti]

Client's K plan allows client to make a matching contribution for NHCEs only equal to lesser 100% of deferral and 6% of pay. Client forgets about the 6% limit and matchs 100% of deferrals which results in "excess" matchs from $81 to $2,000 aggregating to about $9,000. Effectively, client contributed too much for NHCEs only but no other problems (e.g., no 415 issues). The accounts are self-directed and many of the participants have their accounts at different brokers so any correction which leaves the excess in the plan will be really messy to accomplish. Semi-seriously, is it worth correcting this error when it benefitted only the NHCEs and no other problems exist?

[Mike Preston]

"is it worth correcting this error when it benefitted only the NHCEs and no other problems exist"

Only if you wish to have your plan be considered qualified. (g)

I think a retroactive amendment which expands the match is just the ticket. Follow the IRS Correction procedure. Should be easy to accomplish.

[mbozek]

This seems to to fall into the no harm no foul category of plan mistakes. Other than a minor amendment (?)/board resolution to allow the mistaken contribution (Under the IRS mantra that a plan must be administered in accordance with its terms) I dont see anything wrong with leaving the contribution as is. Amendment may not be necesssary if plan permits discretinary employer contribitions.

[Richard Anderson]

Assuming this is a calendar year plan; was any of the 2001 match actually deposited in 2002?

[Guest djsimonetti]

The plan year in question ended 2/28/01 and the problem surfaced a few weeks ago as the TPA was preparing the 5500. I'll check the timing of the match. Are you thinking that some of the match deposited after that date could be treated as a match for the following plan year?

[Richard Anderson]

Yes, but I think you should have a corp resolution that states what part of the contribution after PYE applied to what plan year.