incorrect refund made to H/C

[Belgarath]

Plan testing was done incorrectly, which exacerbated the ADP and ACP failure, and 2 H/C received refunds of about $400.00 each. Plan would have failed ADP and ACP anyway, but correct refund amount should have been more like $150.00 each.

What's the proper correction for this? I don't find anything in Rev. Proc. 2003-44 that really addresses this situation. The H/C don't care, and want to just leave it alone. They have already filed taxes for 2003, both individual and corporate. While this is certainly a simple solution, I'm not comfortable that it is the correct solution. Would appreciate thoughts on how you might handle this? Thanks!

[Harwood]

Mr. Tripodi says to "Obtain repayment of the incorrrectly paid distributions"

[page 15.609 in 2004 editon]

[Tom Poje]

well, I suppose if your document said 414s comp was any definition that satisfied 414s you could try testing comp-deferral, or if you used comp from date of entry maybe use year to date comp and see if you can make the test fail closer to the $400 refund.

Hey, there is nothing in the regs that says you have to use the testing method

which produces the best results - e.g. def of comp, testing otherwise excludbales separately, etc)

bizarre idea, huh? go for it!

if total amount of overpayment to a participant is less than $100, then rev proc 2003-44 (Self Correction) part III section 6.02c implies you don't have to request a refund

The 2003 version is different from the 2002-47 in that an additional sentence is added - that you notify the participant that the refund is not available for rollover.

Ha. this paragraph is primarily dealing with a regular distribution overpayment, but the distribution you are talking about is still an overpayment.

[Belgarath]

Thank you both.

[K-t-F]

I read these boards daily to learn... I am amazed that the truly knowledgable posters know where to look... down to the "rev proc 2003-44 (Self Correction) part III section 6.02c" as Mr. Poje referrs... Now that I am persuing pensions more activly I find these boards invaluable. Just posting a "thank you" to all for taking the time to help and assist others who are less knowledgable!!

[austin3515]

I'm with PATA, paritcularly with Mr. Poje!

[jquazza]

Assuming the test is now correct and cannot be tweaked to get to the amounts that were refunded, obtaining the repayment from the participant may not be an easy thing to do. I believe the plan administrator should make these participants whole, even if they don't returned the money, as he approved the impermissible distribution.

[Tom Poje]

you might try reading some of the old discussions found here - Q and A 38 - 42 deal with improper return of excess contributions.

There is some 'dust' on these, some of the discussion pertains to the self correction program when it first came out, but my guess is that most of the arguments are still valid.

in particular see #41 - not recommended to make plan whole by making an additional contribution. In effect, this would give the HCE a 'free' nonelective contribution.

*cough* gasp, I churned up plenty of dust just looking through my notes where to find the stuff

http://benefitslink.com/qa_columns/plan_defects/archive/

[TBob]

I agree that you probably should not have the sponsor put money back into the plan if the participant refuses to, IF the participants benefits are accounted for separately. This would result in a windfall to the participant who is in this case an HCE.

If this was a pooled account situation where all of the participants benefits would be affected, then I think you need to look at making the plan whole.

[jquazza]

I think that's arguable. The basic principle of EPCRS is to make the participants whole as if the error had never occured, HCEs or not.