Mistake or not?

[Guest HJoseph]

The plan sponsor deposits deferrals, loan repayments and match to a cash account within the plan the day after the pay date via ACH. They allocate these to participant accounts monthly.

When the sponsor went to allocate to participants, she accidently transferred the money from the account she uses for the ACH and not the cash account held within the plan.

Now the cash account holds the original contributions AND she re-deposited a months worth of deferrals, loan repayments and match to participants. (double deposit)

Can we return the contributions held in the cash account?

[BG5150]

Why not just leave them there to offset (and maybe completely cover) the next remittance?

[pmacduff]

IMHO you leave those funds already in the plan in the cash account and apply them toward the current month's contributions as they accrue. You're only talking about a month anyway, right?

I've always been told that the IRS/DOL do not like to see funds leave the plan and return to the Employer. I know others will disagree because this particular situation does not impact participants (since they have received their proper allocations).

[ESOP Guy]

The only thing to watch is if this happened this month and the next month is when the next deposit is due you have crossed years. If I recall correctly they can't deduct 401(k) deferrals until they are earned. This isn't something that can't be fixed but one just needs to be careful. If this had happened in July and the fix happens in Aug it would be a non-issue. But most tax returns are done on a 12/31 year end.

But I would just leave the money in the plan also and just decrease future deposits.

[Kevin C]

It depends on whether you are concerned about the prefunding prohibitions for salary deferrals in 1.401(k)-1(a)(3)(iii)© and match in 1.401(m)-1(a)(2)(iii)(A). If you are concerned that the deposit of the extra amount before next month's services are performed would prevent that extra deposit from being used as next month's deferrals and match, returning the extra deposit under the plan's mistake of fact rules may be the cleanest way to handle it.

[Guest HJoseph]

Unfortunately, the deposit was over $20,000, most of which is deferral and loan repayment and they've already deposited the first 2 payperiods for the December to the cash account, leaving only about $1,900 in unfunded match for the rest of the plan year ending 12/31/2012. They don't usually do additional employer contribution above the match.

[Kevin C]

Most plans provide for the return of contributions to the employer if they were made due to a mistake of fact. Our VS document has it in the miscellaneous section of the base document. If your document has that provision and they do not want to allocate additional contributions this year, that may be your only option.

[K2retire]

And I believe that making duplicate deposits is one of the very few situations actually spelled out as a mistake of fact by the IRS.

[shERPA]

If there was ever a mistake of fact situation, this is it. I would not have a problem recommending the return of duplicate funds. They should document the transactions that caused it and the correction for the file in case it ever needs to be explained. It is easy enough to see how this would happen and the fix is straightforward, with no impact on the operation of the plan and the proper allocation of contributions.