excess contribution definition

[K2retire]

We have an audit level plan that incorrectly calculated the match and deposited more than their formula for some participants. The plan's auditor is saying that this is an excess contribution requiring the payment of an excise tax on Schedule H of Form 5330. Since this had nothing to do with a failed ADP or ACP test, I don't believe that is correct. Where can I find something to show the auditor that defines the term "excess contribution"?

[BG5150]

I have no cite, but FWIW, I agree with you.

(So, just tell the auditor "Hey, BG agrees with me" and that should be the end of that. )

[Belgarath]

IRC 4979 © and (d), for purposes of the excise tax, provide definitions that route you back to the definitions in

401(k)(8)(B), and 401(m)(6).

FWIW I agree with you also.

[david rigby]

Excess = PS?

[K2retire]

Excess = PS?

The excess is match. But it is a compensation error. The plan excludes bonuses and catch up from match and the person making the deposits included both.

[david rigby]

You miss the point. Can the "excess" be assigned to be a PS contribution, thereby eliminating an excess?

[PensionPro]

Excess Contributions are the deferral amounts of HCEs that are treated as causing the failure of the ADP test. Clearly match in excess of the formula does not fall under this description.

[Tom Poje]

somewhat along similar lines:

EPCRS, Appendix B, section 2.06 ( it's example 24)

has an example of failure to limit comp

in 2006 they gave 8% profit sharing but used comp of 250,000 instead of limiting it to 220,000

the correction method is (Tom's wording)

Hey idiot. just take the stupid extra $2,400 (adjusted for earnings) out of the participant's account and put it in an unallocated account to be used to reduce future contributions.

[Guest KristenE]

One other suggestion - ask the Auditor to provide a cite for their position.

[AlbanyConsultant]

Somewhat related: I have a plan with two entities - a c-corp, and a second one that changed to a partnership eff. 1/1/12 (unbeknownst to me). Suddenly, when I factor in K-1s, owners/partners (they're the same people in both entities) have net comp <$0. And of course they deferred and made SHM deposits during the year.

Obviously, the SHM gets forfeited, used to fund future deposits, yada yada yada. And the deferrals get refunded. Both with earnings. What I'm not so sure of is:

(a) is there any penalty on the deferral refunds, since it's now 8+ months after the end of the plan year?

(b) does this fit onto a 5330 somewhere? I don't see where it would, but I want to be positive.

Thanks.

[K2retire]

You miss the point. Can the "excess" be assigned to be a PS contribution, thereby eliminating an excess?

Not without creating an enormous liability for additional PS for the remaining employees.

[PensionPro]

Somewhat related: I have a plan with two entities - a c-corp, and a second one that changed to a partnership eff. 1/1/12 (unbeknownst to me). Suddenly, when I factor in K-1s, owners/partners (they're the same people in both entities) have net comp <$0. And of course they deferred and made SHM deposits during the year.

Obviously, the SHM gets forfeited, used to fund future deposits, yada yada yada. And the deferrals get refunded. Both with earnings. What I'm not so sure of is:

(a) is there any penalty on the deferral refunds, since it's now 8+ months after the end of the plan year?

(b) does this fit onto a 5330 somewhere? I don't see where it would, but I want to be positive.

Thanks.

There is more than one view on handling W-2 and earned income in same year. Some net it and some don't.

[Bird]

You miss the point. Can the "excess" be assigned to be a PS contribution, thereby eliminating an excess?

Not without creating an enormous liability for additional PS for the remaining employees.

I agree that it's not an excess by definition...but am curious about what you're planning to do with the money.

[david rigby]

You miss the point. Can the "excess" be assigned to be a PS contribution, thereby eliminating an excess?

Not without creating an enormous liability for additional PS for the remaining employees.

Why additional liability. The ER deposited $100K for match, but found out they only needed $99K, then just define the extra $1000 as PS and allocate it to all participants. Or something like that?

[BG5150]

Why additional liability. The ER deposited $100K for match, but found out they only needed $99K, then just define the extra $1000 as PS and allocate it to all participants. Or something like that?

Maybe they don't want to open accounts up for people who would get $4.12 of profit sharing.

[david rigby]

That's a good point.

Maybe they could allocate it as additional match to all NHCEs who already are getting a match. (Hey, I'm just looking for a simple solution here.)