Pull out in 2016 from HCEs account wrongly deposited Employer Discretionary Contribution in 2015

[AdKu]

Due to a CPA error, some HCEs received a discretionary employer contribution and it was deposited to their respective accounts in 2015

There were many NHCEs who were suppose to receive this contribution instead of the HCEs.

Is there any requirement to provide notice to the HCEs, If we pull out the already deposited discretionary employer contribution from HCEs accounts in 2016?

Please advise any issues that may arrise doing so.

[Bird]

I don't think there are any "requirements" about correcting such an error, but it's your choice as to whether you want to explain it ahead of time or take the money out and then explain it later when the (now angry/upset) participants ask what happened.

[ErisaGeek]

However something to keep in mind is are you going to pull the basis contributions or even the gain or loss on that incorrect contribution? Given how the market has performed in the first quarter of 2016 odds are you may have a loss.

So something to ponder whether you will be pulling the basis or the amount with the loss which means the plan sponsor may have to still come up with the loss. For example if HCE A got $250 incorrectly and today it is worth $200. So you would pull $200 out from HCE A and plan sponsor still has to fund the loss of $50 to come up with the $250 in total to reallocate or you still pull $250 from HCE A which would not be fair unless it is still the owners we are talking who are HCEs and not a HCE based on prior year compensation limit.

Thanks.

[My 2 cents]

Have they found a new CPA yet?