Elective Deferral Contribution Made by an Ineligible Employee

[Guest AJM 34]

A ineligible employee was allowed to contribute to the Plan. It was discovered after the Plan Year end 12/31/06.

The excess contribution plus earnings were distributed in 2007.

My question is do I include this excess contribution in Participant Contribution line 2a(2) on Schedule I? Also, do I include the Ineligible employees account balance in the ending plan assets value 1(a)?

[WDIK]

Based on my understanding, I would answer "yes" to both questions you pose.

[Bird]

I think I'd do the same. I suppose there's an argument that they aren't "participant" contributions and should be carried as a liability, but I don't think anyone cares.

[John Feldt ERPA CPC QPA]

A little hijacking here:

Suppose the deferral contribution was for a person who is not even an employee of the Employer. For example, a non Controlled Group, non Affiliated Service Group, with company #2 owned 50% by the same shareholder as company #1, with 50% owned by an unrelated individual, where the companies don't do any business together. Only Company #1 has a 401(k) plan but both companies use the same payroll provider, and that payroll provider allowed an employee of company #2 to defer into the plan of company #1.

Now would you put this under contributions received 2(a)(3) "Others" ?

[Mike Preston]

No, it doesn't rise to the level of a contribution. It is a BOO BOO. I don't know which line I use for that (Other Income?), but is surely isn't a contribution of any sort.