How do you correct excess deferrals from 4 years ago for accounts that have been distributed?

[katieinny]

Deferrals were impropertly made to a plan based on ineligible compensation, and the employer made matching contributions on those deferrals. The participants involved have since terminated employment and taken lump sum distributions. The dollar amounts are not large. How would corrections be handled in this case?

[Belgarath]

I don't know, offhand, without looking at 2003-44. But I can tell you what I suspect most clients and accountants will say if the amounts are truly small and it was a one-year error 4 years ago. Most of them will give you a resounding "ignore it" - particularly if the cost of correction (TPA, CPA, lawyer fees) exceeds the amount of money involved. I'm not advocating this approach, mind you, just telling you what I suspect is a likely response.

[Guest b2kates]

permit me to amplify on Belgarath's statement; if it was 4 years ago and if Schedule P was attached to the 5500, it is likely that the statute of limitations has expired.

The only open issue would be if the participants involved rolled the excess amount into an IRA. such excess would still be subject to penalty until removed from the IRA

[Guest quinn the car fixer]

Related ? :

3 and 4 years ago there were failed K &M tests b/c of incorrect comp was used.

if they use 1 to 1 correction method what year do the hce's who get refunds show it as income? in 2004? or in 2001, and have to amend their returns?

[J. Bringhurst]

At the very least, I'd contact affected participants and let them know that the excess amounts were not eligible for rollover....