402(g) Failure

[Guest NPS Darren]

One of my client's allowed a participant under 50 to defer $16,650 of his pay.

We are obviously having the plan disburse $150 back to the participant plus earnings as a excess 402(g) correction.

My question is how is this presented in our annual reporting?

My assumption is that we show the net of $16,500 as his 401(k) contribution on his benefit statement; therefore the balance will be showing is $150 less than the actual asset balance as of 12/31/2010. In doing so I would assume that for reporting on the 5500 we will need to indicate the $150 as a liability.

Any suggestions or knowledge of how to handle this would be great?

This client does there own payroll and screwed up.

[Tom Poje]

instructions for the 5500 line 2f (schedule H and I, 8e on the SF) says: include on this line all distributions paid during the plan year of excess deferrals under code section 402(g)...

so if the problem happened in 2010, but the excess deferral was corrected in 2011 I wouldn't think you would show it as a liability in 2010 on the 5500 - you are going to show it as a distribution in 2011 on the 5500.

In addition, excess deferrals of HCEs (unless they are catch ups) are required to be used in the ADP test.

now, how you show things on the participant's statement is up to you. If for instance you were using an asset import into your software, you also wouldn't show a distribution until the following year - unless you make a manual adjsutment. and then the following year you'd have to make another adjustment to reverse what you did in the prior year.

again, its up to you what you want to show to the participant

[TPAMan]

My first option is always to report what actually happened. For 2010, report the depost of $16,650 and then in 2011 you will report the corrective distribution of $150.

[yea - like Tom says]

[Guest NPS Darren]

My first option is always to report what actually happened. For 2010, report the depost of $16,650 and then in 2011 you will report the corrective distribution of $150.

[yea - like Tom says]

I follow what you are saying. My total 401(k) deferrals were $21,650 for the year, this includes the $16,650. Now on the 5500 for participant contributions we would indicate $21,650, correct?

My thinking previously was that I would need to indicate $21,500 here and thus would need to show $150 as a liability.

[Tom Poje]

That's the way I see it, show the full amount (no liability) and the following year indicate the distribution of excess deferral.