Guest CINCY Posted October 21, 2002 Posted October 21, 2002 I have a plan with three participants who were over the 10% deferral cap stated in the adoption agreement for the 2001 plan year. My instinct would be to return this money to the client as contribution in error. Do you know of any other way to correct this situation. This is for the 2001 plan year and the money has not yet been returned.
austin3515 Posted October 21, 2002 Posted October 21, 2002 None that I know of. 2002-47 is th self correction prorgram provided by the IRS. This inidcates only a few failures which can be corrected by retroactive amendment. Does the plan allow for after tax contributions? It could be recharacterized... Austin Powers, CPA, QPA, ERPA
Guest MaryMac Posted October 21, 2002 Posted October 21, 2002 I could swear I read somewhere that an acceptable correction if the participant was not an HCE was to leave the money in the plan. It was so long ago, I could probably not lay my hands on it now. A consultant provided it to me when I was in a similar situation. It was a Q&A piece about corrective measures for common plan problems. Wish I could be more specific.
Tom Poje Posted October 22, 2002 Posted October 22, 2002 perhaps you are thinking of the correction method in which ineligible people deferred. the plan is retroactively amended to make eligibility more liberal. usually that would only involve NHCEs. see Q & A 107 (Correction of plan defects) for more discussion of deferrals exceedin plan limit. basically, return $ plus earnings.
austin3515 Posted October 22, 2002 Posted October 22, 2002 Tom - Is that that book by Reish Luftman? Carries a heavy price tag, but I'm starting to think about pushing my firm to get it. Austin Powers, CPA, QPA, ERPA
Tom Poje Posted October 22, 2002 Posted October 22, 2002 yes and no. how is that for a cop out answer. There is a Plan Correction Answer Book (Reisch/Ashton) actually, I think the second edition of that book is out, but a different editor on the cover, if my memory serves me correctly. we had received a trial copy (30-day deal) but not enough changed in the book for our purposes, so we didn't keep it. (Or maybe Reish has come out with his own Correction Book as well - I don't know) you are fairly new on the board, so you might not be aware that there is another spot on this board. I am not sure how you are logging onto benefits link. if you simply go to www.benefitslinl.com then select Q & A then scroll down to correcting plan defects, you can find Q and A 107. I think it should still be there. I had printed those out, so that is why I am familiar with them. I think they formed the basis for the Plan Correction ANswer Book.
Brian Gallagher Posted October 22, 2002 Posted October 22, 2002 would this case be a plan defect? or operational defect? i always thought that one the money is in the trust, it must stay in the trust, except in the narrow case of "mistake of fact". this situation is certainly a mistake, but it certainly does not sound like a mistake of fact. what my company would do is remove the affected money, plus/minus earnings from the account, still hold it within the trust. when the plan send in it's next contribution, it could short the check by the removed amount. the plan would then have to pay the original amounts to the participants, with taxes withheld. also, w-2's may have to be adjusted. Remember: two wrongs don't make a right, but three rights make a left.
austin3515 Posted October 22, 2002 Posted October 22, 2002 Why do it that way? Poje's way seems a lot cleaner, and there's no reissuing W-2's and stuff like that. You get to the same place. Plus, I wouldn't want it to look like someone forfeited deferrals. I know that's not happening, but some wise guy agent could make that conclusion I would think. Austin Powers, CPA, QPA, ERPA
Brian Gallagher Posted October 22, 2002 Posted October 22, 2002 we do that because of our mantra around here: once in the trust, always in the trust (except in the case of the rare mistake of fact) i didn't make it up, just follow it. Remember: two wrongs don't make a right, but three rights make a left.
austin3515 Posted October 22, 2002 Posted October 22, 2002 I think the mantra should be amended... Austin Powers, CPA, QPA, ERPA
Brian Gallagher Posted October 22, 2002 Posted October 22, 2002 if the plan did return these contributions, how are they reportable to the participant? should a 1099-r be generated? if so, what code would be on it? Remember: two wrongs don't make a right, but three rights make a left.
austin3515 Posted October 22, 2002 Posted October 22, 2002 http://www.benefitslink.com/cgi-bin/qa.cgi...d=107&mode=read This Q&A (which Poje referred to earlier) says it should be treated just like a 402(g) excess. I'm not a TPA, so I have no idea what to code that! Austin Powers, CPA, QPA, ERPA
Brian Gallagher Posted October 22, 2002 Posted October 22, 2002 i guess excess deferral. Remember: two wrongs don't make a right, but three rights make a left.
Tom Poje Posted October 22, 2002 Posted October 22, 2002 Brian: I can't stand it anymore. You should know by now that Mr and Mrs Wong had a child. It was black Thats because two Wongs don't make a white. oh well, yes 402(g) is excess deferrals
austin3515 Posted October 22, 2002 Posted October 22, 2002 LMFAO!! Brian, your tag line is hilarious! Austin Powers, CPA, QPA, ERPA
Brian Gallagher Posted October 23, 2002 Posted October 23, 2002 thank you for your compliment. :-) Remember: two wrongs don't make a right, but three rights make a left.
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