Form 5330

[justatester]

Question: When completing the Form 5330 for Excess Contributions due to an ADP failure...Is the amount that gets recharacterized as catchup contributions subject to the 10% excise...If it is not subject, do you have a regulation reference?

[fiona1]

Answer: No

Citation:

4979(a)General Rule.— In the case of any plan, there is hereby imposed a tax for the taxable year equal to 10 percent of the sum of—

4979(a)(1)- any excess contributions under such plan for the plan year ending in such taxable year, and

4979(a)(2)- any excess aggregate contributions under the plan for the plan year ending in such taxable year.

4979©Excess Contributions.— For purposes of this section, the term “excess contributions” has the meaning given such term by sections 401(k)(8)(B), 408(k)(6)©, and 501©(18).

401(k)(8)(B)Excess contributions.—For purposes of subparagraph (A), the term “excess contributions” means, with respect to any plan year, the excess of—

401(k)(8)(B)(i) - the aggregate amount of employer contributions actually paid over to the trust on behalf of highly compensated employees for such plan year, over

401(k)(8)(B)(ii) - the maximum amount of such contributions permitted under the limitations of clause (ii) of paragraph (3)(A) (determined by reducing contributions made on behalf of highly compensated employees in order of the actual deferral percentages beginning with the highest of such percentages).

[justatester]

Thank you for the reply...

Follow up question: If plan is beyond 12 month correction period and opts to correct with one to one qnec method, do they include the amount recharaterized to catchup in the amount of the qnec?

[fiona1]

Nope. Amounts recharacterized to catch-up are not included in the 1:1 QNEC. Rev Proc 2008-50 states that the QNEC is equal to "the aggregate amounts distributed and forfeited...(adjusted for earnings)" The forfeited part would be for an ACP refund to a HCE who may not be entirely vested in the match. In that situation the non-vested money would still need to be included in the QNEC.