Overpayment of ADP Test Refund

[Just Me]

Has anybody had this issue and come up with a correction method acceptable to the IRS?

The ADP test was done using the wrong compensation for the last several plan years (not what the Plan said to use). Refunds were made to HCEs to correct. Using the right compensation would have resulted in lower refunds to the HCEs.

Thanks.

[Just Me]

Ok...based on EPCRS and the ERISA Outline Book, we're thinking that we can ignore anyone whose overpayment was $100 or less (per EPCRS) and for the rest, make a resonable effort to notify them that they can put the overpayment back into the plan, with earnings (per the EOB, this would be an after tax amount.) For those that don't put their overpayment back in, they will ultimately get less distribution from the plan when they terminate, retire, etc., so no one else (and more importantly, no NHCE) has been harmed (the plan is 100% fully vested in all accounts).

Anybody see any issues with this? Think the IRS would buy it?

Thanks!!

[rcline46]

Ok, question 1 - did the plan define testing compensation and FORBID the use of any other 414(s) definition of compensation? In the unlikely situation the answer is yes, the the previous answer holds. I had the IRS suggest the same thing as possible (but not required) in an EPCRS VCP situation. IE it did not affect the approval of the correction either way.

If you could use any 414(s) definition then there is no ERROR as long as the comp used met a 414(s) definition. The test just was not the 'best' it could be, but it is not wrong.

[Guest mydayjob]

One comment--it appears the $100 Small Overpayment Exception is limited to VCP and Audit CAP so you likely can't utilize it for a self-correction. Anyone disagree?

Also, any thoughts on whether it would be acceptable to bypass all of this and just have the employer make a correction contribution in the amount of the excess refund?