excess deferrals

[Felicia]

Employee participated in Employer's A 401(k) during early part of 2005. Employee terminated service with that employer and was subsequently employed by B. Employee participated in Employer B's 401(k). Employee has excess 402(g) deferrals.

Assuming it would still be timely, from which plan should the excess be removed?

What if employee rolled over his portion of Employer A's 401(k) to an IRA? Does this change the answer?

[WDIK]

Both plans should have language regarding the treatment of corrective distributions which may affect the scenario you describe. That being said, it is my understanding that the participant may notify either plan or allocate the amount of the excess deferral between the two plans.

If a rollover of the account balance has already occurred in one of the plans, it seems to make sense to notify only the other plan.

[Tom Poje]

plans can be disqualified for accepting deferrals above the limit.

In this case it sounds like neither plan is in that position - it is the individual who has violated the limit - and my understanding is that the individual could request from either plan. Thus if $ were already rolled into an IRA it would probably be wise to request from the other plan.

all that being said, it is my understanding excess deferrals can not be removed after April 15th. the exception would be if the plan would be disqualified, then it is permitted under the self correction program.

however, as I said, it doesn't sound like either plan has a valid reason for making the distribution - at least if you are talking about after the April 15th deadline!

of course, we all know the individual is over age 50, so the excess deferral actuall are catch up contributions - correct?

[ERISAnut]

It appears that while this was a 402(g) violation with respect to the taxpayer, this did not amount to a 401(a)(30) excess with respect to either employer. Therefore, in the absence of allocating the excesses to either plan and receiving the corrective amount by April 15th, the taxpayer missed the "window of opportunity" with withdraw the funds and prevent them being considered "tax deferred" in the future when they are ultimately distributed.

When the taxpayer completes their 1040, they will find that the totals of the two W-2 forms will exceed the 402(g) limit and will be disallowed a deduction for the excess. However, by not being distributed by the tax filing deadline, these same amounts will be treated as if they are pre-tax at the time contributed; even thought the deduction was disallowed.