ADP Refunds

[Archimage]

I have a plan that has already terminated and paid everyone out. They have failed ADP. The HCEs all did rollovers to IRAs. Would it be okay to have the refunds come out of the IRAs?

[Mike Preston]

I've always taken the position that it is ok to have them come out of the IRA. Write a letter to each affected participant and let them know that they will be getting 2 1099's. One that reflects the amount of the rollover, the other that reflects the return of monies to cure the failed ADP. Let them know that the latter amount is not rollable, and, if they rolled their entire account balance that they need to withdraw the amount that wasn't rollable before next April 15 in order to definitively avoid having made an excess contribution. If they don't remove it, it will be treated as a personal contribution to the IRA, subject to all the rules associated with personal contributions, including excise taxes for contributions in excess of the limits.

[mbozek]

I think you need to check to see if the plan still exists and check the plan document. Under IRS rules a plan is deemed terminated when the final assets are distributed and the plan admin may not be able to take any further action other than file the final 5500.

[Mike Preston]

Not even file 1099's? Not likely.