ADP, ACP refunds and Top Heavy

[CLE401kGuy]

Are ADP, ACP refunds considered in-service distributions for 5 year look back purposes - seems obvious that they would be, but as I'm looking how the recordkeeper shows the refund in their system (as a negative contribution and the earnings offsetting the total earnings for the year) - It made me wonder - ERISA outline book uses hardship withdrawal as an example of an in-service but no others (unless i didn't read far enough)....

[BG5150]

Keep reading. From EOB:

2.b.3) Treatment of corrective distributions.

It is not clear how corrective distributions
under a section 401(k) arrangement or section 401(m) arrangement should be treated under this
rule. A corrective distribution is a distribution made to correct a failure of the nondiscrimination
test or the limitations on elective deferrals. One reasonable interpretation may be to include a
corrective distribution only if the contribution being distributed is treated as an "annual addition"
under the IRC §415 regulations. Treas. Reg. §1.415©-1(b)(2)(ii) treats excess amounts that are
distributed to correct the ADP and ACP nondiscrimination tests as annual additions, but does
not treat an excess deferral as an annual addition if distributed by the appropriate April 15
deadline under Treas. Reg. §1.402(g)-1(e)(2) or (3). Note that corrective distributions generally
are in-service distributions so the 5-year add-back rule described in 2.b.2) above will usually
apply if the corrective distribution must be taken into account to determine the plan’s top heavy
ratio. (In the IRS Q&A Session at the 2002 ASPPA Annual Conference in Washington, D.C.,
the IRS took the position that corrective distributions under the ADP and ACP tests are included
in the top heavy ratio, but did not discuss excess deferrals distributed under Treas. Reg.
§1.402(g)-1(e)(2) or (3).)