Which guidance rules when the April 15 deadline if missed for refundin

[John A]

I'm confused as to whether 402(g) excess deferrals that have not been refunded by April 15 have to stay in the plan as provided by Reg. 1.402(g)-1(e)(8)(iii), or should or must be returned under APRSC as provided in Rev. Proc. 98-22, Appendix A, .04. Did Rev. Proc. 98-22 supercede Reg. 1.402(g)-1(e)(8)(iii) - which says that the excess deferral must stay in the plan until a distributable event named in 401(k)(2)(B) has occured? If the deferral has to stay in the plan, do earnings still have to be returned?

The language of each section reads:

1.402(g)-1(e)(8)(iii) (not yet amended for GATT)

(iii) Distributions of excess deferrals after correction period. If excess deferrals (and income) for a taxable year are not distributed within the period described in paragraphs (e)(2) and (e)(3) of this section, they may only be distributed when permitted under section 401(k)(2)(B). These amounts are includible in gross income when distributed, and are treated for purposes of the distribution rules otherwise applicable to the plan as elective deferrals (and income) that were excludable from the individual's gross income under section 402(g). Thus, any amount includible in gross income for any taxable year under this section that is not distributed by April 15 of the following taxable year is not treated as an investment in the contract for purposes of section 72 and is includible in the employee's gross income when distributed from the plan. Excess deferrals that are distributed under this paragraph (e)(8)(iii) are treated as employer contributions for purposes of section 415 when they are contributed to the plan.

Rev. Proc. 98-22

APPENDIX A - OPERATIONAL FAILURES AND CORRECTIONS UNDER SVP

.04 Failure to distribute elective deferrals in excess of the section 402(q) limit (in contravention of section 401(a)(30)).

The permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and the year distributed. In accordance with section 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the ADP test; a distribution to a nonhighly compensated employee is not included in the ADP test.

[IRC401]

Unless a change in the law or a court decision overrides a regulation, a regulation overrides a rev. proc.

If you missed the deadline, do not make the distribution until you have a distributable event. The participant has double taxation.