Overpayment for hardship distribution

[QNPG]

Facts: Plan document allows for hardship distributions from the deferral source only. A participant (NHCE) received more than the basis in his account at the fault of the TPA. The distribution happened in 2013.

Question: If the participant repays the overpayment, is the repayment credited back to his account OR put into an "unallocated" account to be used to reduce future employer contributions?

I read Section 6.06(3) of Rev. Proc 2013-12 (EPCRS) where it states that the repayment be placed in an unallocated account which is a separate account that is not allocated on behalf of any participant or beneficiary established for the purpose of holding the Overpayment, again adjusted for Earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year. It is not clear to me whether the repayment by the PARTICIPANT rather than the actual employer or another person would affect the method of repayment (restore to participant's account or put in unallocated account).

Any opinions on the interpretation of Rev. Proc 2013-12 or maybe some practical experience with this type of failure to share?

Thanks,

QNPG

[BG5150]

I read Section 6.06(3) of Rev. Proc 2013-12 (EPCRS)

Keep reading. Section 6.06(4) of current EPCRS:

( c) Unallocated account. Except as provided in section 6.06(4)(d), a corrected Overpayment, adjusted for Earnings at the plan's earnings rate to the date of the repayment, is to be placed in an unallocated account, as described in section 6.06(2), to be used to reduce employer contributions (other than elective deferrals) in the current year and succeeding year(s) (or, if the amount would have been allocated to other eligible employees who were in the plan for the year of the failure if the failure had not occurred, then that amount is reallocated to the other eligible employees in accordance with the plan's allocation formula).

(d) Repayment by the participant or beneficiary. To the extent an Overpayment was solely considered a premature distribution but was otherwise determined in accordance with the terms of the plan, any amount returned to the plan by the participant or beneficiary is to be allocated to his or her account.

[QNPG]

Well, I read that part but is it considered "premature" distribution? The participant received too much money.

[masteff]

Somewhere in your plan it likely says something to the effect of: deferrals can't be distributed before the earlier of 1) termination, 2) age 59 1/2, 3) hardship, 4) etc. Since the money was not eligible for hardship then it was distributed prematurely.

[QNPG]

Thank you Masteff and BG5150.

[Flyboyjohn]

Slight twist on original fact pattern: in-service distributions were made from a money purchase pension plan, error caught on IRS audit, auditor is requiring repayment by the employer.

Am I correct that this repayment goes into an unallocated account and does not get credited to the accounts of the participants who received the "premature" distributions?

And these repayments are deductible and allocated as current year contributions?

Thanks