Deferral in Error

[PFranckowiak]

In January 2016 the Employer contributed 5,000 as deferral for a HCE individual that was never withheld from his pay.  We caught it at year end comparing the total deferrals for the year to w-2's. 

To correct, we need to take the $5,000 from his account.

I assume we need to take earnings also . 

If we use the 5,000 as a part of the discretionary matching contribution at year end, what do we do with the earnings?  (we are estimating about $700)

I cannot see how their accounting department never caught this.

[BG5150]

You would use the entire amount removed toward any employer contribution (except deferrrals) until the suspense account is depleted.  In fact, there cannot be ANY employer contribution until it's depleted.

 

If the improperly allocated amount would not have been allocated to other employees absent the failure, that amount (adjusted for Earnings) is placed in a separate account that is not allocated on behalf of any participant or beneficiary (an unallocated account) established for the purpose of holding Excess Allocations, adjusted for Earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year. While such amounts remain in the unallocated account, the employer is not permitted to make contributions to the plan other than elective deferrals.

From good 'ol EPCRS

 

 

[BG5150]

Unlike forfeitures, I don't think they would have to be exhausted by the end of the year.  That is, if there is no ER contribution, then it would just stay there, rather than being reallocated or used for fees as with a forf account.