ADP Failure Letter

[No Name]

Anyone care to share a letter, to be sent to a HCE, explaining why they are getting a refund of deferrals because of a failed ADP test. Looking for something in layman's terms, but having a tough time because I'm too technical.

[Brenda Wren]

Under the current IRS rules governing the referenced qualified plan, you are considered a highly compensated participant. In order to satisfy the plan's nondiscrimination requirements, you will be receiving a check for $4,326.93 shortly.

Please be advised this is taxable to you for 2004. However, you will not receive Form 1099-R until January 31, 2006. The 2005 1099-R form will be coded to indicate to IRS that the income is taxable in the previous year, 2004.

Be sure to give a copy of this letter to your tax return preparer. If you have any questions, please contact

[Harwood]

This was at the Corbel site in 2003:

401(k) Plan Participant:

The 401(k) Plan failed the nondiscrimination test (1) for the plan year and must make corrective distributions to bring the Plan into compliance. We are enclosing a check for your corrective distribution amount. (2) This letter also indicates the taxable year in which the corrective distribution amount is includible in your gross income. (3) If you already have filed your income tax return for the taxable year, you will need to file an amended return in order to include the corrective distribution in your gross income. The Plan will provide you with a Form 1099-R by January 31 of next year. The Form 1099-R will show the corrective distribution as reportable income for the above taxable year. However, you do not need to wait for the Form 1099-R to report the corrective distribution on your income tax return.

(1) ADP or ACP test.

(2) The corrective distribution must include allocable income. Treas. Reg. §401(k)-1(f)(4)(ii); Treas. Reg. §1.401(m)-1(e)(3)(ii)(D).

(3) See Treas. Reg. §§1.401(k)-1(f)(4) and 1.401(m)-1(e)(3), Notice 89-32 and the Form 1099-R instructions for guidance regarding the taxable year corrective distributions are includible in gross income.