Reversion, suspense account, or other?

[John Feldt ERPA CPC QPA]

An employer accidently paid a former employee a paycheck when no wages were due and deferrals were also withheld from the paycheck and deposited into the plan. The can get the net paycheck back and they are able to offset the taxes withheld with their next tax filings, but they are not sure what to do about the "deferrals".

Technically the real paycheck is zero and thus no deferrals should be possible.

Can the plan distribute these "deferrals" back to the employer without triggering and excise tax?

Or, should the amounts be held in the plan under a suspense account until the next contribution to the plan is made, and offset that contribution by the suspense account?

Any other ideas for handling this?

[Peter Gulia]

For a single-employer plan or a multiple-employer plan, ERISA § 403(c)(2)(A)(ii) allows, as an exception from that § 403(c)(1)’s exclusive-purpose and non-inurement commands, a return of an employer’s contribution or payment made by a mistake of fact if the return to the employer is within one year after the mistaken payment of the contribution.

 

Many plans’ governing documents have a provision designed to fit this exception.

 

[Luke Bailey]

It would seem that this would be one of the rare instances where you could take the money back under ERISA's mistake of fact rule, but it will be SOOOOO much easier and cheaper to just suspense it and short the next employer check into the plan by that amount.