What do you do if a company accidentally wires too much money?

[FundeK]

Can anyone please let me know what you do when an employer wires too much money and it is deposited into the trust account. For example, the payroll file is for $200,000 but the empoyer accidently has $220,000 wired to the trust. Do you force the employer to short their next wire because you can not take money out of the trust account once it is in there, or would you send the money back to the employer?

Anything you could cite would be greatly appreciated!

[Harwood]

If the excess deposit was truly an error, then with the company's written direction, it is acceptable to refund it to them.

Isn't it a general rule of correction to make things the way they would have been had the error not occurred? Assets do not have to be kept in the plan in all situations.

I have no cite.

[david rigby]

But if you can adjust the next wire transfer easily, that might also be an acceptable solution. (Might depend on when that next transfer is.) Written documentation of your actions is advisable.

[E as in ERISA]

Under the 401(k) proposed regulations, the latter solution would potentially be a problem in the future. A contribution made in advance of participants' service could not be credited to future deferrals. It would have to be treated as an additional employer contribution. (So you would probably want to make sure it was flagged as an error and withdrawn).

[FundeK]

I am having a little trouble with this issue because I am being told that you can not return funds once they have been deposited in the trust because it would be a reversion of assets (which I am not sure I agree with). I am being told that unless it qualifies as a mistake of fact (which isn't all that clear what qualifies) then the money has to remain in the trust.

My other question is, would you allow them to deposit the money into the forfeiture account if forfeitures are used to reduce funding of future contributions? What if forfeitures are reallocated to participants?

[R. Butler]

I am being told that you can not return funds once they have been deposited in the trust because it would be a reversion of assets (which I am not sure I agree with). I am being told that unless it qualifies as a mistake of fact (which isn't all that clear what qualifies) then the money has to remain in the trust.

I agree with that analysis, but I don't have any problem calling this a mistake of fact based on the facts you have given us.

[Erik Read]

An oldie but a goodie - this happens a lot, and has been discussed for years. Opinions vary, and the best solution with the new EPCRS rules, is - DOCUMENT whatever you do.

I've heard it argued to exhaustion that this is not a "DISTRIBUTABLE EVENT" and does not allow for the employer to remove assets. In those cases, the deferral file for the next payroll had "negative" deferrals to show for the deposit. I've also seen the excess put in the suspense account and used for match or Profit Sharing at Year end (most documents do not specify that those contributions are only made at year end).

I've also heard it argued that so long as you document the mistake in fact under EPCRS you can have the excess returned.

Pick a method, and if it happens again, be absolutly sure you treat it IDENTICALLY to the first correction.

[Belgarath]

I agree with R. Butler. You might wish to take a look at PLR 9144041, which gives some insight into what the IRS might consider a "mistake of fact." Under the facts presented, I would feel quite comfortable returning this (properly documented, of course!) to the employer as a mistake of fact. I'm assuming that this is a DC plan - if not, and it is a DB plan, you might want to take a look at

Revenue Procedure 90-49.