Paid before distribution determination date - correction options?

[AlbanyConsultant]

Hi. I have a participant who terminated in 2013 and received an immediate distribution. Which is great... except that the plan says that the distribution determination date is the end of the plan year, paid as soon as administratively feasible after that.

It looks like EPCRS says that the correction method (presuming the participant won't return the money) is that the employer has to make a deposit for the distributed amount to make the plan whole (which is a whole 'nother topic, since this is a participant-directed account plan and it didn't affect anyone else in the plan) and then use it for their next employer contribution. But this is a deferral-only 401(k) plan - there are no active employer contribution sources.

So my questions are:

(1) Is there some kind of reasonable way around this? The participant was paid out exactly what she was due.

(2) If the sponsor has to deposit $2K to make up for the early payment that they authorized, can they use that to fund deferral deposits?

Thanks.

[masteff]

You don't specify what part of EPCRS you're looking at... I assume it's 6.06?

Note the sentence I've underlined:
"(b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (e.g. an impermissible in-service distribution))."

My opinion is you can self-correct under SCP which at this point basically means documenting the new procedures you've put in place to ensure it doesn't happen again.

[AlbanyConsultant]

masteff, I love your conclusion... but I'm not seeing how you get to it from the underlined sentence. It's the parenthetical part that is throwing me, I think.

[masteff]

I think the parenthetical is speaking more towards the calculation of the amount distributed, such as applicable vesting or a restriction on a specific source (such as an in-service of deferrals which should have been subject to the hardship rules) or even allowing an in-service when such didn't exist in the terms of the plan. I'd think it could also be the form of distribution, such as a lump sum in a plan with a QJSA. Anything that is outside what the plan otherwise allows.

From what you describe, the distribution was done before the determination date but was otherwise, such as the amount and form, in accordance with the terms of the plan.