ADP failure

[pbarrett]

We have a plan that failed the adp portion of the test. We were attempting to get all the distributions processed by the 15th (actually we thought we had until today).

If the excess distributions go today, am I correct that the excess amount amount will be taxable in 2002 and 2003 (calendar year plan).

To be clear, let's say the 2002 excess was $1000 and it had a $2.30 gain. The $1,000 will be taxable in 2002 & 2003. The $2.30 gain will be taxable only in 2003. Right??

[R. Butler]

No. You may be confusing this with 402(g) excesses

This is a taxable distribution in 2003, not 2002. It was distributed after 3/15. Gains on excess contributions are taxable in the same year as the excess contribution (in this case 2003).

[pbarrett]

I guess I am confusing it with the 402g. So really, there is no penalty for doing the distribution after 3/15 as long as it is before the 12 month period. Right? The worse thing might be the HCE might be in a higher tax in 2003 versus 2002. (As you might tell, I usually work on the DB side.)

[R. Butler]

The employer is liable for a 10% excise tax on corrective distributions made after 3/15 (assuming calendar year plan).

[jaemmons]

Employer will be liable for a 10% excise tax (Form 5330) on the corrective distributions, since the corrections were made after 2 1/2 months after the end of the plan year.