ADP refunds and TH

[Earl]

Is a refund paid in 2008 to correct a failed 2007 ADP test treated as an in-service distribution and added back for TH if the recipient is Key (as well as Highly).

What about if the Participant only becomes a 10% owner mid 2008. Is the same refund added back?

I think if you are Key you are Key for the year so it is added back as paid to a Key employee.

(Plan is TH for 2009 with the refund, not TH without the refund)

Thanks

[Jim Chad]

I don't think this is addressed in the regs.

FWIW I would not treat it as an inservice and I would not add it back.

[BG5150]

Aren't ALL withdrawals (distributions) added back into account balances for the lookback year for keys and non-keys alike? So it wouldn't matter is the person was a key or not. The difference is that key ee's have in-service withdrawals in the four years prior to the lookback year added back in, too.

So the main question here is whether or not the ADP refund is used in the next 4 TH tests (assuming this person remains a key employee.

[Tom Poje]

At the 2002 ASPPA conference, the IRS answered that question as follows:

Q 3. Are corrective distributions (ADP/ACP) considered in-service distributions and added back for 5 years for purposes of determining

top-heavy status?

Answer: Yes.

A reminder that:

This material does not represent the official position of the Internal Revenue Service, the Treasury Department, or any other government agency; nor has it been reviewed or approved by the Service or Treasury.

(If theor comments were never reliable then why bother with the Q and A's, so it gives at least a basis for taking a position. - there were no other comments on this one (e.g. that ASPPA individuals disagreed or nything similar)

my logic would say to include it. It would seem somewhat strange to treat people differently: e.g if you had 1 HCE who was under age 50 and another over age 50 who was allowed to keep the $ in the plan due to catch up.