HCE Elections fo ADP Refunds

[austin3515]

Do I have to have an HCE sign off an ADP refund? I know the refund is mandatory, but, for example, they could elect to waive out of the 10% withholding.

Or is the employer allowed to proceed without the elections? Is there any guidance on this?

[K2retire]

Generally we (as the folks holding the $) require a trustee to direct the distribution and whether or not there is withholdings. If you are asking for the HCE to sign, what do you do if they refuse?

[austin3515]

It;s much less refuse as opposed to procrastinate that I'm concerned with. But in either case, the default 10% withholding would apply. I just wasn't sure what the requirements were in terms of opting out of withholding.

[austin3515]

3405(e)(10) Time and manner of election. --

3405(e)(10)(A) In general. --Any election and any revocation under this section shall be made at such time and in such manner as the Secretary shall prescribe.

3405(e)(10)(B) Payor required to notify payee of rights to elect. --

. . .

3405(e)(10)(B)(ii) Nonperiodic distributions. --The payor of any nonperiodic distribution shall transmit to the payee notice of the right to make any election provided in subsection (b) at the time of the distribution (or at such earlier time as may be provided in regulations).

3405(e)(10)(B)(iii) Notice. --Any notice transmitted pursuant to this subparagraph shall be in such form and contain such information as the Secretary shall prescribe.

[Jim Chad]

It seems pretty plain that you are required to give notice....besides it just plani being the nice thing to do. But I don't think you need to wait 6 months for the reply. If I don't get a reply, I process it using the trustee's signature in time to get it done by March 15th and avoid the penalty.

ON the other hand, my plans are small and I have very few of these. So I often call the HCE and have an answer about what withholding they want in 5 minutes. It is not in writing, but I note the time and date of the phone call and I am OK with that.

[K2retire]

That personal contact is truly the better service.

[austin3515]

Based on what I've learned we're giving the clients a notice (that looks kind of like a form) for the HCE's, telling them the amount of the refunds, that they'll get a 1099, not eligible for rollover, yada yada, and that by checking the box below, they can opt out of the 10% withholding.

So we're not requiring that they send it back, but we are complying with the requirement to provide them with the appropriate notification and opportunity to opt out of the withholding. I'm quite happy with it