Correction of Overpayments

[Brian Haynes]

I represent a client that is receiving monthly payments under an Excess Retirement Plan and Supplemental Plan (both non-qualified arrangements). The client received a letter from his prior employer informing him that the benefits he is receiving are incorrect and that future monthly benefits will be reduced and that the client must return a substantial sum. In justifying this, the employer stated that this must be done in order to satisfy IRS requirements regarding payments from non-qualified deferred compensation plans and to avoid the employee being penalized under Section 409A. Would Section 409A require this corrective action? Thanks.

[QDROphile]

Probably. Ask for a more detailed explanation and a full description of the corrective actions to be taken.

[XTitan]

Probably. Ask for a more detailed explanation and a full description of the corrective actions to be taken.

If this a correction under 409A (see Notice 2008-113 and Notice 2010-06), such an explanation would be necessary to attach to a 1040 as part of the corrections program to avoid 409A-related additional taxes.