401(k) Correction

[Guest moltengater]

I ran 401(k) non-discrim. testing on Plan A for 2003 - plan failed and 4 HCE's recevied a refund - prior to 03/15/04.

In March 05 - ER discovers that 401(k) contribution for 12-26-2003 was never remitted to the trust and they send in the funds.

I retest 2003 and fina out plan still fails but refund amounts would be about 1/2 of what was initally paid out 1 year ago.

What corrective path does plan follow? Can HCE's put money back into the plan and then just amend the 1099's and have them amend their personal returns?

[Blinky the 3-eyed Fish]

I am confused as to why you think you should retest. The fact that the employer didn't remit the final 2003 contribution doesn't change the amount of deferrals by the participants. It just means the employer kept the money too long and they have a PT for their lateness in remitting. So, sure they sent in the funds now, but they need to add earnings and file a 5330.

[Guest qualified plan]

OTOH, Blinky, why should the deferrals lost their status as such just because the employer delayed getting them into the trust?

For example, if the employer was two days late getting the $$ into the trust(instead of many months late, as here), should the amounts now not be counted as part of the ADP test? I would think they should be counted in either case.

[GBurns]

The deferrals should not "lose their status" but that is not what Blinky said.

Why was a retest needed anyhow?

[austin3515]

I think he's saying he tested with bad data...

[Tom Poje]

as described, the following occurred:

deferrals made in Dec 2003

due to error never deposited until 2005.

the regs are clear on this one

1.401(k)-2(a)(5)(i) this refers you to 1.401(k)-2(a)(4)(i) which requires deferrals to be deposited no later than end of the 12 month period following the year to which the contribution relates. (wow, I have never seen this one come up before!)

thus, you may not, I repeat NOT use these in the ADP test. instead they must satisfy the a(4) test as if they were the only nonelective contributions for the year.

(I doubt you could cross test because that would require the gateway!)

now, the cite I provided is from the new regs, but I know it exists in the old regs as well, I just am too lazy to thumb through the book to find it since I have this one handy.)

[Blinky the 3-eyed Fish]

My post assumed the deferrals that were not deposited were included in the test originally. I had thought their deposit date wouldn't affect the testing, so I thank Tom for teaching me something.

[Tom Poje]

Blinky - I forget when I tripped across that piece of info - a number of years ago, and it sort of has stuck in the back of the thick skull.

now that you have more posts than me I would like to say "you're a better man than I am..." but given your 'state of being' it wouldn't quite be true. hmmmm. I am fishing a quote that fits you.