Down to the Wire on 402(g) Correction!

[rocknrolls2]

Help! Company A maintains a 401(k) plan for its employees on a calendar year plan year. Participant M was employed by Company A during 2005. In a letter date stamped April 6, 2006 but delivered to the appropriate people on April 13, Participant M notified the Company A plan administrator that s/he had an excess deferral during 2005 and requesting a timely correction of the appropriate amount plus earnings. The plan administrator was advised to process the change this afternoon (since there is no extension to the 4/15 date to the next business day in the case of a weekend). In addition, the stock market is closed for Good Friday tomorrow so if the trade order is received late the participant will not be timely corrected. This would result in the participant being taxed in both 2005 (the year of the excess deferral) and 2006 (the year of the corrective distribution). Any suggestions on how this can be corrected and the double taxation and 4979 excise tax avoided? (Participant M is 37 so recharacterizing the excess as a catch-up contribution doesn't work).

[Guest mjb]

Refund the excess on April 17 and rely on IRC 7503 language that extends the time for performing any act prescribed under the IRC to the next succeeding day that is not a Sat., Sun or holiday. I dont know where you got idea that the Apr 15th deadline cannot be extended. See discussion of this issue on another thread.

[E as in ERISA]

Did you check your plan document? Plans will frequently specify an earlier due date for the notification such as March 1 in order to avoid this problem (assuming that the excess occurred based on contributions to more than one employer).

[rocknrolls2]

That notification due date has been liberalized based on IRS regulations and updated in the plan document. We initially changed it from March 1 to April 5 and then to the date prescribed by the Plan Administrator.

[QDROphile]

Shouldn't the plan adminstrator be giving directions in this matter, which involves certain interpretations and judgments necessary in connection with terms adopted by the plan administrator?