Excess deferral - 2 plans

[ombskid]

Employer sponsors both 401(k0 and 403(b) plans

Employee derred more than $23,000 in 2013. W2 showed two separate defrred amounts that added up to $23,700

401(k) is a fiscal year plan (why it wasn't picked up earlier)

What is the correction? Any choices which plan?

[Lou S.]

Does the participant qualify for on of the special catch-ups in the 403(b) plan? Been a long time since I looked at 403(b) rules but there used to be a few that might allow for unusually large contributions.

If the answer to my 1st question is no, than the participant needs to receive a 402(g) refund of excess deferrals of $700 +/- gain(loss) no later than 4/15/14. I believe the participant can specify which plan they want the refund to come from but if they do not make an election then I believe the administrator can establish procedures for which plan the refund should come form.

[Tom Poje]

since the person deferred into both plans I doubt either plan is in violation, so neither plan would be disqualified.
so it is up for the person to request one of the plans for a distribution.
if one of the plans has specific language regarding excess deferrals if in more than one plan I would go with that plan.

The language in the Corbel document (not sure if there is something is more recent)
(f) Excess Deferrals. If a Participant has Excess Deferrals for a taxable year, the Participant may, not later than March 1st following
the close of such taxable year, notify the Administrator in writing of such excess and request that the Participant's Elective Deferrals
under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator shall direct the distribution of
such excess amount (and any "income" allocable to such excess amount) to the Participant not later than the first April 15th following
the close of the Participant's taxable year. Any distribution of less than the entire amount of Excess Deferrals and "income" shall be
treated as a pro rata distribution of Excess Deferrals and "income." The amount distributed shall not exceed the Participant's Elective
Deferrals under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy
each of the following conditions:
(1) the Participant shall designate the distribution as Excess Deferrals;
(2) the distribution must be made after the date on which the Plan received the Excess Deferrals; and
(3) the Plan must designate the distribution as a distribution of Excess Deferrals.
Regardless of the preceding, if a Participant has Excess Deferrals solely from elective deferrals made under this Plan or any other
plan maintained by the Employer, a Participant will be deemed to have notified the Administrator of such excess amount and the
Administrator shall direct the distribution of such Excess Deferrals in a manner consistent with the provisions of this subsection.

...............

I remember years ago looking into this issue and finding out that technically a plan might not even have language for permitting a distribution under this scenario, since the plan is not in violation. However, under EPCRS you can correct an excess deferral, so logically you can distribute anyway.

[401king]

We have a participant that just notified us that they overcontributed $6,000 between two plans. Can anyone confirm that this is the correct way to process:

• Distribute excess + earnings - taxable in 2013 and 2014 (code 8 for both years? Two 1099s?)
• If HCE - distribution remains in ADP test;
• If Non-HCE, the distribution is removed from ADP testing. Plan would be retested and any ADP refunds would be subject to 10% penalty.

I'm pulling this from Rev Proc 2013-12 http://www.irs.gov/pub/irs-drop/rp-13-12.pdf. Page 56:

.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in contravention of § 401(a)(30)). The permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and in the year distributed. The inclusion of the deferral and the distribution in gross income applies whether or not any portion of the excess deferral is attributable to a designated Roth contribution (see § 402A(d)(3)). In accordance with § 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the ADP test and a distribution to a nonhighly compensated employee is not included in the ADP test.

Thanks in advance!

[Tom Poje]

well, when the person files his income taxes, the IRS, since they do everything so brilliantly will add the W-2s and notice the overage in deferrals, and so, whether the person claimed it or not, will tax the person anyway (well, ok, maybe that won't happen, but that is what should happen)
and yes, since we are past the April 15 deadline, the person gets taxed in the year of distribution as well.

these are the notes I have:
If excess deferrals are not distributed by the April 15 deadline, the excess is taxed twice, once in the year deferred and once in the year the excess is distributed. Only one 1099-R is issued—for the actual year of distribution—but the individual still needs to report the deferral on the tax form in the year the excess occurred. In addition, excess deferrals that are not distributed timely (before April 15) are subject to the Section 72(t) 10 percent premature distribution tax.

.......

again I think it's 1 1099 because the govt has caught the fact the person had excess and adjusted the taxes appropriately.

[Earl]

Participant in two plans of unrelated employers defers $25,000 this year.

I am being told by an Ins company that the excess deferrals must be paid by the plan that received the excess, presumably meaning the last deferrals made for the year.

I never heard that and can't find in the 402(g) regs.

Any truth to that?

Thanks

[Tom Poje]

I have never heard such a claim before.
if the person deferred 12,500 to each plan, which received an excess?
Not the plan itself, it is the person who deferred too much.

the following
http://money.stackexchange.com/questions/23511/over-contribution-to-401k-between-two-employers-and-maximizing-employer-match

also says the person could decide which plan refunds the excess (the person making the comments points to an IRS guide indicating you could request a refund from either plan (assuming the plan document permits it). again, remember, neither plan has accepted an excess on its own, so neither is in violation, so the document should have something about the ability to request such an excess deferral - I suppose a poorly written document might not provide such, but then, even under EPCRS you can correct anyway.

what I find interesting in this example, the person was in an unmatched 401k, quit, and ended up in an immediate eligibility with match plan. the suggestion was to intentionally defer the limit and take advantage of getting the match, and then take the entire deferral as excess from the first plan.

[K2retire]

I've heard record keepers say things like that in an effort to force the distribution from the other plan.