Refund of contributions from ineligible participant

[Guest ljansen]

I am a CPA auditing a 401(k) plan. The plan is a prototype plan. The employer has always used Oct-1 and Apr-1 as entry dates, though plan doc states Jan-1 and Jul-1. An employee began deferring on Oct-1, his first entry date after the plan's required 6 months of service. Subsequent to the plan year-end, it was determined he was not eligible. The administrator instructed the trustee to refund the contributions less fees and investment losses. They then enacted an amendment to reflect the Oct-1 and Apr-1 entry dates, though not retroactively. Is it proper to deduct fees and investment losses if he was deemed inelgible? Should this be reported as a distribution payable at year-end? The administrator is not including this participant on their year-end reports at all - no contributions, no balance, no loss allocation. However, his contribution receivable is included in total contributions receivable at year-end.

[Guest rmeigs]

Does deal with all the issues, but this link may be helpful:

Elective Deferral Contribution Made by an Ineligible Employee

http://www.mhco.com/Chronological_Updates/...%20Employee.htm

[Guest philc]

And don't forget to coordinate the new entry dates with 410(a)(4).

[Brian Gallagher]

what about all the other people?

operational failure? VCR?

[Blinky the 3-eyed Fish]

Brian, I don't understand your concern. Please explain.

[Guest oxdougw]

Wouldn't this be treated as a mistake of fact. Remove the distribution, pay it to the non-participant as wages and any gain would be left in the plan, or loss made up by the employer outside the plan.