Definition of "corrective distribution" under EPCRS

[britoski]

If a plan under contributed to a former participant (for example, due to an incorrect definition of compensation) and now owes a small additional amount under the EPCRS procedures, is this a corrective contribution, a corrective distribution, or both? I am asking to figure out how to apply the de minimus exception. From Rev. Proc. 2013-12:

"If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan."

It seems to me that this paragraph (and particularly the last sentence) is attempting to distinguish between corrective contributions to current accountholders (for whom providing a corrective contribution would require almost no administrative cost) and corrective distributions to former participants who no longer have an account balance (and for whom providing a corrective distribution would result in a (potentially) significant cost).

Is this the way that others are reading this guidance? If not, how are plan sponsors handling very small contributions due to former participants?

[ETA Consulting LLC]

You answered your own question. If the plan under-"contributed", then the correction would be an additional contribution. If it were a distribution, then you would think taxable event requiring a Form 1099R.

Good Luck!

[britoski]

It's this last sentence that gives me the most trouble:

Corrective contributions are required to be made with respect to a participant with an account under the plan.

This sentence was added between Rev. Proc. 2008-50 and Rev. Proc. 2013-12. What was the IRS trying to clarify with this?

If the IRS was trying to say that all participants needed to be provided with a corrective amount, wouldn't this have read: "Corrective contributions are required to be made with respect to all current and former participant, whether or not they have an account under the Plan"?

[ETA Consulting LLC]

If you 'short' someone, then you must give them their contribution. However, if the individual has money in the plan that really shouldn't be there, you do not have to distribute it to them if the amount is negligible. So, the key is that no contribution is so small that you would be excused from making it to the participant's account.

Good Luck!

[QDROphile]

Also, if the participant had already taken a full distribution of benefits and then the corrective contribution occurred, no tail distribution would be required if the amount is under the minimum. That would effectively mean no contribution for the individual, but what needs to be done about that amount depends on circumstances. Under one VCP filing, the amount was treated as a forfeiture.

[britoski]

Thanks to all who responded- this was helpful!