Corrective Distribution

[sdix401k]

Plan has failed the ADP test and the participant who is supposed to get the corrective distribution has rolled the money over to his IRA. So, in this case who is the reporting agency? Do we report the taxable distribution or does the IRA institution distribute the corrective distribution and report a 1099R?

If the IRA institution distributes the money to the participant, is the plan sponsor liable for the 10% excise tax (distribution is past the 2 ½ months deadline) even though the distribution will be done from the IRA?

[Guest Sieve]

The employer ought to issue a 1099-R showing that only a portion of the distribution to the HCE was eligible for rollover, and the rest of the distribution is taxable. The employee therefore was not eligible to rollover the entire amnount, and may be eligible for a refund from the IRA custodian of the "excess rollover" (or else has made a non-deductible contribution to the IRA). But, that excess rollover--if it must be removed from the IRA as an impropoer rollover--will be treated as a distribution from the Plan, and will be subject to all appropriate income & excise taxes. The distribution was not beyond the 2-1/2 month period if the rollover was not made after that time period, since all that is happneing here is issuing a 1099R showing the proper designation of the distribution--the distribution was timely made.