Testing Failure 2005

[Guest RIA]

I just reviewed a case wherein signifcant sums of money (salary deferrals of HCE's) were left in the plan after ADP testing for 2005 indicated a test failure. Distributions of the excess amount including earnings finally happened in December 2006 after I raised the question with the recordkeeper. When I asked the recordkeeper if the excise tax was paid or if the amounts were included in the 2006 W-2's, I got dead silence. Assuming either one of these problems remains an issue, what us the repair on this given that it's now Feb 2007. I assume that the W-2's can be adjusted but when is the tax due and is it just on the refund amount or that amount plus the earnings paid?

[Tom Poje]

distributions would not be included on a w-2. the financial institution should have provided a 1099r to the individual as well as to the govt, thus big brother knows about the money.