pmacduff Posted October 8, 2012 Posted October 8, 2012 If an Employer neglects to stop the participant's contributions for 6 mos after a hardship withdrawal of deferrals is the proper correction to (1) return the contributions, plus earnings to the participant and also (2) forfeit any associated matching contributions plus earnings to the plan forfeiture account? The Plan Doc does utilize the safe harbor hardship rules.
rcline46 Posted October 8, 2012 Posted October 8, 2012 Refer to the 'bible' - Revenue Procedure 2008-50.
pmacduff Posted October 8, 2012 Author Posted October 8, 2012 I did go through 2008-50 but cannot find anything relative to this situation. I even searched "hardship" and "hardship suspension" within 2008-50 and found nothing on point. UPDATE: I was able to find an article from McKay Hochman as well as the information directly from an IRS phone forum which outlines the 2 possible correction methods; the first being the return of the deferrals (adjusted for earnings) to the employee.
rcline46 Posted October 8, 2012 Posted October 8, 2012 We consider the failure to be Excess Contributions which is covered in RP 08-50, because they are excess deferrals.
TPAMan Posted October 8, 2012 Posted October 8, 2012 Heck, I always thought the correction was to proceed with the six month suspension.
masteff Posted October 9, 2012 Posted October 9, 2012 Heck, I always thought the correction was to proceed with the six month suspension. That was my answer too but not sure where to put my finger on the source. Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
John Feldt ERPA CPC QPA Posted October 9, 2012 Posted October 9, 2012 If you file VCP you could try various options to fix, such as (quietly now, sh . . . . ) doing nothing regarding the extra deferrals. If you have a good argument and if they're NHCEs, I've heard that some plans have been successful in arguing that position.
pmacduff Posted October 9, 2012 Author Posted October 9, 2012 The McKay Hockman article (as well as the IRS phone forum info) states TPA Man's option as the 2nd option. They both mention, though, that using that method can possibly create issues with the matching contribution calculations as well as other issues if the employee terminates before the full 6 months has been completed. For those interested - if you google "failure to suspend deferrals after hardship" you can get both the IRS forum info and the McKay Hockman article. J4FKBC has a great idea, but in this case the plan definately uses the safe harbor hardship rules and I wouldn't want the client to take the chance. (This client is actually under audit for a prior plan year, so I think we'll make this correction as "right as possible" ) Thanks for all the replys!
masteff Posted October 9, 2012 Posted October 9, 2012 See slide #26: http://www.irs.gov/pub/irs-tege/epcrs_plan..._phoneforum.pdf Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
John Feldt ERPA CPC QPA Posted October 9, 2012 Posted October 9, 2012 Yes, I have seen that (slide 27). But again, you may sometimes be surprised what special circumstances or arguments will be accepted by the IRS. edit: typo
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