Match Calculated Incorrectly

[Guest Frank Jackson]

The match was calculated incorrectly for 5 Highly Compensated Employees. The mistake was discovered after the end of the plan year and the excess amount was refunded to the employer. The auditor feels that this a prohibited transaction and requires Form 5330. The TPA states that it was mistake of fact and the refund is ok. The amount was about $1,000.00 for each participant. Is it mistake of fact? Can a remedial program be used? (APRSC) Should a Form 5330 be filed? Thanks for your help.

[Tom Poje]

It might depend on if match is required or discretionary.

If required, then the match was not allocated according to the terms of the document. Therefore, an operational error, so should be eligible for APRSC - I would think you could argue mistake in fact. It will be a lot nicer once IRS gives some actual guidelines.

if match was discretionary, I would guess match would have to be reallocated to all particpants as means of correction. Again, you would be operating in terms of the document.

[LCARUSI]

I guess I have to agree with the TPA. The Company makes a mistake and presumably there is no pattern of past "mistakes" or other shananigans. So the company discovers the mistake within a reasonable period of time and corrects it promptly. No one benefits or suffers due to the error. Why are we hanging this client out to dry with 5330s, correction programs etc.?