SIMPLE 401(k) plan - two HCEs have exceeded the 415 limits - deferrals

[Guest Sara H]

I have a SIMPLE 401(k) plan where two HCEs have exceeded the 415 Limits for the year. The deferrals plus earnings are returned to them in the following plan year. I am wondering how others report the return of this money to the employees. Do you show it in the plan year where the excesses occurred or do you show it in the year that the money was actually returned to the employee?

[Guest]

refunding elective deferrals over the 415 limits:

elective deferrals and gains are taxed in the year the year the year distributed

(per The ERISA OUTLINE BOOK)

[Bill Berke]

First, you are not dealing with a 401(a) plan. You are dealing with IRAs. Thus, the correction, I think, must be done by refunding the excess(and related earnings) in the year of deferral and appropriately adjust the employee's W-2. What is not known is whether the failure will be treated as an impermissible contribution to an IRA generating the 6% penalty tax. Of course, if the IRS follows this logic, then the employee has until 4/15 of the following year to withdraw excess and related earnings. But, somewhere in the law or reg's, I beleive this is covered (at least for SIMPLE IRAs). I hope that the same rule applies to SIMPLE 401(k). Which gets to a different issue. As Fred Reish, "notorious" ERISA lawyer, once said "Anyone recommending a SIMPLE 401(k) is committing malpractice." And he is 100% correct when you compare the SIMPLE IRA rules with the SIMPLE 401(k) rules