Excess Deferral Distributed But None Was Due

[ERISA1]

I am taking over a case in which the old TPA says the plan failed ADP and that Excess Deferrals were refunded more than 12 months after the year in which the test failed. They recommend client file VCP to correct late refund with a QNEC (or One-to-One). Here's the interesting part - The ADP test actually passed! (They omitted several HCEs who were not deferring.) The upshot; however, is that participants under age 59.5 received impermissible in-service distributions of deferrals.

1. Would you agree that this an operational violation which requires a VCP filing?

2. What correction should we propose? I'd like to allow employees to re-defer the distributions, but can I get a waiver of 402(g) limit and ADP test? (I doubt it.)

Thanks.

[BG5150]

How long ago was this? I don't think you need VCP if it's not too long ago.

[ERISA1]

Distributions were paid in March of 2013 with respect to (incorrectly calculated) Excess Deferrals for 2008.

Why does time matter?

[BG5150]

Significant failures can sometimes be corrected under SCP if corrected within two years after the error. Insignificant errors can be corrected any time.

In this case, since the ADP test never failed, your error is current, and not from 2008.

I'd just try to get the money back from the employees. Put it back with earnings. tax forms were not done, so no harm, no foul, so to speak.

[QDROphile]

But there is a foul, so the correction should be done in accordance with EPCRS, and SCP should be available.

[BG5150]

But there is a foul, so the correction should be done in accordance with EPCRS, and SCP should be available.

I meant no harm, no foul in that if the money is returned, there won't have to be any tax issues.

[BG5150]

Well, now that I think about it, it there was withholding, it would be tough to unwind.