ADP and 402(g) Failure

[Guest Leigh Lindsey]

A client has excess contributions of $1,800 for the plan (calendar) year, and refunds are being made after the 2 1/2 month deadline. One of the participants requiring a refund also deferred $11,000 for the year and received a refund of $1,000 in excess deferrals before 4/15/99. Is the 10% excise tax based upon the excess contributions of $1,800 or the $800 remaining to be distributed?

[Guest]

fascinating. The Erisa Outline Books provides an example of that scenario!

excess contribution is $1000- it is distributed on April 1 (600 for excess deferrals)

If excess contributions distributed before excess deferrals, then:

the 600 excess deferral is treated as corrected by the excess contribution. for tax purposes the plan must report $600 as excess deferrals and ONLY the remaining portion as an excess contribution.

(Emphasis mine)

based on that I would say 10% only applies to excess contibution, so nothing on the excess deferral. But that is my reading of the example given - I could be wrong.

see tres reg 1.401(k)-1(f)(5) and 1.402(g)-1(e)(6) for coordination of 402(g) and ADP