Late ADP refunds & partial correction

[Guest M. Martin]

Have an odd situation where there was an error and only some of the required ADP refunds were processed for the 2010 plan year during 2011. Refunds had been calculated for 6 HCEs but when the plan transferred to a new service provider it was discovered that 3 of the refunds had been missed. The original testing method excluded the OEE group and the total refunds were $11,000.00; of which $5,600.00 plus earnings were properly distributed in November 2011.

Using the less costly one-to-one correction method, the plan cannot be treated as two separate plans and must be re-tested to include the OEE group which increases the refunds due for all 6 HCEs.

Question #1: Assuming the total refunds now equal $13,000.00; must the 3 HCEs who originally received their refunds before 12/31/11 receive an additional refund based on the revised test results? If the answer here is yes, the correction procedure also calls for earnings to be calculated from the end of the plan year of the failure (12/31/10) through the date of correction. For these 3 HCEs, would their earnings be calculated based on the full revised refund amount or just the additional the portion that is due?

Question #2: The QNEC under the one-to-one method must be equal to the amount distributed. If the amount distributed is $7,400.00 (adjusted for earnings) based on the revised refunds less the amounts previously refunded would the QNEC need to be for the full $13,000.00 or the lesser adjusted amount?

Client to decide which NHCEs to allocate the QNEC to:

1. anyone who was an NHCE in the year of the error;

2. anyone who was an NHCE in the year of the error and who continues to be an NHCE in the year of the correction;

3. anyone who was an NHCE in the year of the error and who continues to be an employee of the plan sponsor on a date specified by the sponsor during the year of correction; or

4. anyone who was an NHCE in the year of the error and who continues to be an active NHCE in the year of the correction on a date specified by the sponsor during the year of correction.

Lastly, prepare Form 5330 for the total revised refunds equal to $13,000.00.

[Tom Poje]

this is somewhat old, but probably still valid that maybe will answer one of your questions, see especially item 2 of the author's comment at the end

http://benefitslink.com/modperl/qa.cgi?db=...ects&id=119

[Guest M. Martin]

Thank you, this information is perfect.