Mistake of Fact/Return of Excess Contribution

[J Simmons]

An office manager misunderstood what was to be taken into account as plan compensation. He added to each partner's earned income his or her share of passive profits in a related entity. He then gave the results as a single sum (not broken out or detailed) for each partner to the TPA, along with staff employees' W-2 info.

The TPA computed the plan contributions on the basis of the 'earned income' numbers for the partners as provided by the office manager. After the contributions were made, one of the partners asked for details of the computation and discovered the error made by the office manager.

The TPA has recomputed the contributions on the basis of the actual earned income amounts, and there is an overage.

I'm interested on what your thoughts may be as to whether this is under PLR 9144041 a mistake of fact that permits the plan to regurgitate the excess to the contributing employer.

Thank you.

[Guest Sieve]

John, you failed to mention if this is a db plan, so I will assume that it is. Although I haven't read all the PLRs and Rev Ruls about this issue in a long time, it seems to me that this is a mistake of fact (if it's a db plan) since the mistake in the compensation numbers was an error which directly resulted in bad contribution numbers. That also assumes that the plan permits a return resulting from a mistake of fact. If these are not the facts, then expand and let's discuss some more.

[J Simmons]

Thanks, Larry.

The plan does have the necessary language as permitted by Rev Rul 77-200 for returns due to mistake of fact.

The plan is, however, a profit sharing plan.

However, this is an affiliated service group situation, and the contributing ASG member has but one "employee", the SE owner. Thus, what we're looking at for a limitation is 25% of after-contribution SE income, the 404(a)(3) deduction limit. We cannot use any of the unused portion of the 404(a)(3) deduction limit of other members of the ASG.

[Guest Sieve]

In that case, John, I don't think you can take a return, because the amount exceeds the deduction limit and because the contribution is discretionary and there probably is no resolution of agreement in which the exact amount of the contribution is memorialized (in which case an erroneous contribution could be returned). For example, look at this string: benefitslink.com/boards/lofiversion/index.php/t14199.html

[J Simmons]

Thanks for your input, Larry.