Excess contribution due to annual additions limit

[Guest Tara Curran]

We have a client that over contributed to participants in 2000 and 2001 and several participants went over the annual additions limit. The client has computed for each participant the amount of employer contributions that needs to be refunded. However, we need some help in determining the best method to figure losses. The participants can individually direct their investments into any option they choose. Therefore, to compute the earnings/losses on each individual person will be extremely time consuming. Is there any guidance as to how to compute the loss associated with these excess contributions.

[Tom Poje]

Tara:

see the thread

'RevProc 2002-47 in word format' this rev proc is the latest and greatest word on self-correction.

There is a document file on this thread.

page 70 of the document gives the govt's guidance of calculating earnings.

granted that all the examples involve 'gains' rather than 'losses', I don't see how you can use another method not sanctioned under the self correction program

[jaemmons]

Before you compute the G/L on the amounts, you must first look to see how the document handles 415 violations. It sounds to me like you have 401k money in the plan and the employer contributed PS $'s which caused the violations. You CANNOT distribute employer $'s over the 415 limit because these are not qualified plan benefits to the participants (benefits violated IRS code section 401(a)(16)). By doing so, you could put the plan's and trust's tax qualification is jeopardy.

If the plan document does not stipulate that employee deferrals or post-tax contributions are first distributed, then the employer portion is forfeited to suspense and used to offset next year's PS contribution (assuming the document does not increase pro rata to all other employees). EMPLOYER MONEY CANNOT BE DISTRIBUTED.