1099's for Failed ADP Test - EE Paid Out

[Rob P]

We have a 401(k) plan that failed their ADP test for 2008 and has only now elected to make the refunds to select HCEs to correct. The problem is that some of the HCEs were paid out during the 2008 calendar year.

How are 1099R's handled for participants that fully cashed out in 2008? Assuming they rolled over their accounts, I understand that distributions from their IRAs will be required, but do the IRAs issue the 2009 1099 or should the plan issue a 2009 1099?

Any input would be appreciated.

[Tom Poje]

lets suppose the rollover to the IRA was $10,000, but unfortunately because the plan failed the ADP test, there was $1000 in excess contributions.

this means only 9000 was eligible rollover. so, in effect the person has made a $1000 contribution to the IRA for 2009, which is perfectly all right, assuming the IRA contribution limity wasn't exceeded.

I think the way it works is that the plan issues 2 1099s, one showing the 9000 in rollover and another for 1000 excess contribution, which is taxable.

(all amounts subject to whatever gains/losses involved , of course)

[K2retire]

Of course, at this point that probably means amending the 1099Rs.

[Rob P]

Thanks for the input.

I guess my follow up is for the distribuitons that took place in 2008, should the plan be issuing the 2009 1099 and then directly tell the IRA provider to distribute? Or should the IRA provider be notified, have the IRA provider calculate the 2009 earnings and then the IRA provider can tell the sponsor how much to issue the 1099 for.

[austin3515]

My understanding was this:

1) Trustee/Plan Administrator sends a letter to rollover institution saying that $1,000 was ineliglbe for rollover treatment.

2) Once notified, the rollover institution will return the money to said Plan. Because the money is being returned to the Plan(FBO the partcipant of course), no 1099 is generated.

3) The Plan now distributes the money with the proper 1099 code.

I thought this was out of EPCRS, more or less, though it has been some time since I ran into this...