Mistaken DB contribution

[k man]

Rev. Procedure 90-39 sets forth the porcedure for taking back non-deductable contributions. How does an employer provide documentation that employer contributions were "conditioned on deductability"? We dont have employer resolutions to that effect.

[k man]

What is the method for taking out a DB contribution after the close of the plan year. In particular, I am concerned about an employer who wants to take out a contribution they cannot deduct. the plan year end was 3/31.

[david rigby]

I think terminology can be important here.

Most plans contain language that allows a sponsor to remove a contribution from the trust (there is a time limit) if it was a mistake of fact or if it is not deductible.

Your title uses the word "mistaken" but your message implies nondeductibility. The IRS has stated that nondeductibility is not a "mistake of fact". An example of a mistake of fact is a clerical error of contributing $54,000 when the correct amount should have been $45,000.

I would suggest that you review the document for the appropriate language. If it is not there, you may have a problem. In either case, review by an ERISA attorney is advisable. The process of getting the $ out of the trust should probably involve documentation of the problem, why it occurred, the exact plan provisions that permit the withdrawal, and do it all in writing.

[This message has been edited by pax (edited 05-08-2000).]

[k man]

I need to review the plan but new facts have come to light. the employer claims they were told to make the contribution by the adminstrator who of course denies this. the plan is fully funded and the investments have performed extremely well.

[Guest ak]

Look at Rev. Rul. 91-4 for more info on getting back nondeductible contributions.

[Alonzo]

Your plan document may have language which provides that all contributions to the plan are conditioned on their deductibility. (All plan docs have language regarding the return of contributions. Look closely in that language.)

------------------

[Alonzo]

I believe the Rev. proc (or Rev Rul 91-4) says that the IRS must rule that the contribution is not deductible before you can retrieve the contribution. In any event, it is prudent to wait.

Note that your employer may get hit with the excise tax for nondeductible contributions.

------------------

[k man]

One more question. Under Rev. Proc. 90-49, should the employer take back the contribution immediately or it do so only after IRS sends letter saying it is ok?

[This message has been edited by k man (edited 05-09-2000).]