Excess match but no excess deferrals

[Guest LLandau]

Problems Problems

In 2001, employee contributions were made to the 401(k) in a proper manner (correct percentages). However, the match for some participants was too high. Now, the employer would like to correct the error by returning the excess match amounts to the company and issuing revised W-2s to the effected participants. The plan document discusses return of excess contributions to participants and discusses forfeited matching amounts but is silent on this particular fact pattern.

Employer is concerned that permitted the participants who received the higher match to keep the excess amount would be a discriminatory practice.

Any advice would be appreciated.

[BFree]

Why would a return of Match result in a revised W-2?

[Guest LLandau]

BFree:

You are so right, thank you! I win the "muddled thinking" award on that point. One fewer problem.

But, now, does the plan have to specify a return of excess match or is this something that can assumed? What do you think?

--L

[Blinky the 3-eyed Fish]

I am betting nowhere in the document does it allow for one employee to get a different rate of match than another. That being said, the problem needs to be corrected.

Why not just transfer the mistakenly deposited matching contributions from their accounts with earnings and use those monies to reduce future matching contributions deposits? That would seem to me to be the logical means of self-correction.

[pjkoehler]

Llandau: Your plan document probably has language in it that follows ERISA Sec. 403©(2)(A). See also Rev. Rul. 91-4. If it does and the plan administrator concludes that the actual matching contributions exceeded the rate specified in the plan due to a mistake in fact, e.g. counting the number of participants or determining the compensation amounts, you have a reasonable argument for refunding the excess to the employer on this theory, so long as the refund occurs within one year of the matching contribution deposits that caused the excess rate to emerge.