ADP refund was too much.

[fiona1]

In February of this year we issued an ADP refund to a participant. Gross was $4,600 and earnings made it $5,100. She cashed the check.

But we just found out the ADP test was incorrect, so it was reprocessed. The correct ADP refund amount is $4,400 and earnings make it $5,350.

I've done some research, and it looks like this is referred to as an operational failure. I read that I should use the EPCRS to correct this. The EPCRS (Rev Proc 2008-50) has a "Return of Overpayment" section that says the participant should return the difference to the plan. It goes on to say that this money should be put in an unallocated account and used to offset future employer contributions.

How would you handle this situation? Just have the particpant send back the gross difference plus earnings? ($4,600 - $4,400)? Send back the difference between the totals after earnings ($5,350 - $5,100)?

And does it really need to go into an unallocated account to offset future employer contributions like the EPCRS says?

[QDROphile]

You got mixed up on the unallocated account part. The overpayment was from the participant's account, so the restoration should be to the participant's account.

I am not addressing the earnings, so infer nothing from no comments.

[BG5150]

Wait. You said the gross refund was $200 LESS (from 4,600 to 4,400), but with earnings it came out to $250 MORE (net from 5,100 to 5,350).

Sounds like you didn't refund enough money....

[Tom Poje]

if the refund was too much, you request return of the excess amount because it was not eligible for distribution. if individual does not return, then you need to redo the 1099, indicating that a portion of the $ is (most likely) subject to the 10% early withdrawal. or at least that seemed to be the opion of the IRS at the 2008 ASPPA conference. granted those opinions expressed are the agents and do not necessarily represent the actual position of the IRS.