Excess Contributions Refunds

[Guest Peter Riggins]

We have a 401(k) plan that failed the ADP test and is correcting the failure by refunding excess contributions to the affected HCEs. However, one of the affected HCEs terminated employment through the spinoff of a division and rolled 100% of his account balance to a new 401(k) plan. Does the refund of excess contributions and related earnings for this HCE have to come from the new plan to the HCE at the direction of the old plan's administrator? What if the new plan's administrator (or the HCE) refuses to allow for the distribution from the new plan?

[Blinky the 3-eyed Fish]

Your solution is solved from the old plan in that distributions were made. The problem comes now from the new plan, where they have rollover monies that were ineligible.

Thus contact the new plan's administrator and explain the situation. If he doesn't comply by making the distribution, then it's his problem now, not yours.

[pjkoehler]

Peter: One of the ramifications of making corrective distributions is that the amount that was payable to the former employee was not part of an eligible rollover distribution. You should direct the trustee to issue a corrected 1099R if it hasn't already done so reducing the amount of the eligible rollover distribution and an additional 1099R coded to reflect the corrective distribution.