corrective distributions when the HCE is already paid out

[Santo Gold]

401(k) is being audited and it was discovered that several prior year ADP tests failed. Auditor wants the employer to now make corrective distributions.

Three HCEs have since terminated employment and rolled their benefit into IRA's. I understand that the employer must now notify them that the excess contribution portion of their rollovers is not eligible for tax shelter rollovers. But my question is, who issues the 1099-R for the corrective distribution now? The plan because thats actually where the excess amount came from/should have came from? Or the IRA, since that is where the excess amounts will now actually be taken from?

Thanks

[J Simmons]

I would think the plan, since they ought to be 1099-Rs for the years of ADP failure, not when the dollars come out of the IRA.

[Bird]

Definitely the plan; the way it is supposed to work is that the plan issues a 1099-R for the taxable/non-rollable amount, and the IRA issues a 1099-R indicating a refund of excess contributions (non-taxable, ignoring earnings) so there's one taxable event.

In this case, it's not clear if the 1099s from the plan are to be issued for this year or some prior year, and if for a prior year, isn't it too late for a distribution of excess? And if for this year, but the money was rolled in a prior year, I don't know that the IRA custodian will let it come out as a return of excess if there was no actual contribution for the year in which the excess supposedly occurred.

[david rigby]

Any chance that these HCE's are still within 60 days of distribution?

[Santo Gold]

Nope, distributions took place well over a year ago.