2009 ADP Failure

[Dazednconfused]

Plan fails ADP, one of the HCE's who requires a refund took a hardship and earlier in the year and is about $800 short of the refund amount. How is the ADP failure corrected when this happens?

Can part of the earlier hardship be 'recharacterized' as part the the ADP refund? I would assume that the 'recharacterized' amount would be the $800 or could it be the entire ADP refund amount (the hardship was well over the ADP failure amount).

Thanks for the help.

[Lou S.]

I assume you mean after taking a hardship he doesn't have enough left in the account to satifsy the refund amount? We had this happen once. We recharaterized part of the hardship as ADP refund. Not sure if that is the correct way to do or if any formal guidance exists (we couldn't find any when we looked) but it seemed like a reasonable way to handle it. We just issued 2, 1099-Rs. the auditors didn't have a problem with us treating it that way.

[Dazednconfused]

Thanks, yup that is what I meant, not enough funds left in his account to distribute the ADP refund required. I can't really find anything regarding as of yet, but that does seem like a solution for now.

Thanks!