"Mistake of Fact"

[thepensionmaven]

Employer was given the calculation for employer SHM contribution for 2017.They contributed about 2X as much to participants' individual accounts and want the money returned.

The fundholder told them they could have the excess returned as a "mistake of fact" and send the employer the proper form to be completed.

I would not consider this a "mistake of fact" solely on the basis that the funds have already been allocated to the participants.

I would like to advise them to keep the money in the plan, use the same amount for 2018 SHM that was used for 2017 and allocated the difference as an employer profit sharing contribution.  The total employer contribution (PS and SHM) is within the 25% limitation.

Thoughts??

[Belgarath]

I'd be comfortable with considering this a "mistake of fact" - and allowing the return of contributions. A mathematical error is one of the situations that the IRS mentioned in a PLR from back in 1994 - let me check - 9144041. Seems to me that if the TPA, CPA, EA, MOUSE, whatever gave the employer a calculation that said "deposit x dollars for the match" and there turns out to be a slipped digit somewhere, it qualifies. I assume this is within 12 months of the error? Almost has to be - don't see how they could have deposited the 2017 match in May of 2017...

Well, ok, I suppose they could have deferred the maximum by then, and deposited the match as well, but let's say it is unlikely.

[XTitan]

1 minute ago, Belgarath said:

 TPA, CPA, EA, MOUSE,

MOUSE?  That's goofy...

[Belgarath]

You are probably too young to remember the Mouseketeers, even on reruns.  Just substitute TPA for MIC, then CPA for KEY, then go directly to MOUSE.

Tom Poje likely has a musical number that incorporates this...

[jpod]

It's still not clear how this mistake happened.  If employer was told to contribute X, why did employer contribute 2X?  Or, did employer do its own math and come up with 2X and deposit it, and then lo and behold was advised after the fact that it should have been only X?

[Belgarath]

FWIW, I was operating on the assumption that the TPA, whoever, incorrectly calculated the 2X amount and told the employer to deposit that amount.

[jpod]

Could be a fair assumption, in which case it is a MOF, but it's not clear those were the facts.

[Belgarath]

You are right, I shouldn't assume. On the other hand, if politicians (and I will refrain from using names lest I offend people) don't have to worry about facts, why should we...

Well, thankfully we are held to a higher standard than politicians.

[Kevin C]

4 hours ago, thepensionmaven said:

I would like to advise them to keep the money in the plan, use the same amount for 2018 SHM that was used for 2017 and allocated the difference as an employer profit sharing contribution.  The total employer contribution (PS and SHM) is within the 25% limitation.

Thoughts??

If you are thinking of using the excess amount for 2018 match, keep in mind that 1.401(m)-1(a)(2)(iii) prohibits prefunding of the match.

 

It doesn't happen often, but I have seen clients make the same deposit twice.

[austin3515]

I for one would like to know the circumstances that led to them depositing twice the amount.  If for example Susan processed the match on Monday and Bill processed it on Wednesday, that is clearly a mistake of fact.  I think for mistake of fact it has to be something like that.

[jpod]

•  

[thepensionmaven]

Circumstances?

How about stupidity, as the amount they contributed did not bear any relationship (2x,3x, etc) to the amount due.

I for one, do not believe this to be a "mistake of fact" and that is why I advised the client to leave the money in the plan.

Thanks.