BTG Posted August 4, 2011 Posted August 4, 2011 A participant affirmatively elects out of an automatic-enrollment 401(k). Nonetheless, the participant is enrolled at the default rate and has been making deferrals for four months. I don't believe there is any "IRS approved" correction for this problem in Rev. Proc. 2008-50. Has anyone attempted to fashion their own correction or have any thoughts on what it would look like? Thanks!
BTG Posted August 9, 2011 Author Posted August 9, 2011 For the benefit of anyone facing this issue in the future... I ended up talking to an IRS Employee Plans Voluntary Compliance representative regarding this issue. He indicated that the failure should be corrected by disgorging the deferrals from the plan with earnings. (If earnings were negative, he indicated that perhaps the employer should make those up to the employee outside of the plan.) The employee should receive a Form 1099-R for the amounts, which can be shown as a corrective distribution not subject to 72(t).
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