Correction of excess deferrals/match

[Lori H]

5 participants exceeded 402(g) limit for 2017 plan year ending 12/31.  All 5 receive k-1's.  Since the distributions occur after 4/15 I believe the excess along with earnings will be taxable in the current plan year AND the prior year.  Does this mean 2017 K-1's will have to be amended and if so, how will the additional earnings affect the calculation of the safe harbor match?  Not all members earnings exceeded the 401(a)(17) limit.  

Finally I assume a Form 5330 will have to be completed for the excess deferrals and an excise tax will be owed by the plan sponsor.

Anything else I might be missing?

 

[JackS]

The taxation will be reported on the Form 1099-R.  The K-1's don't need to be amended.   Plan Comp does not change because the 401k deduction does not affect the partner's plan compensation in the first place, just their taxable income.  Yes to the 5330.

 

[PensionPro]

what is the purpose of filing form 5330?

[Tom Poje]

Lori: you are correct. taxable in both years

EPCRS

Appendix A

.04 Failure to distribute elective deferrals in excess of the § 402(g) limit (in contravention of § 401(a)(30)). The permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and in the year distributed. The inclusion of the deferral and the distribution in gross income applies whether or not any portion of the excess deferral is attributable to a designated Roth contribution (see § 402A(d)(3)). In accordance with § 1.402(g)-1(e)(1)(ii), a distribution to a highly compensated employee is included in the ADP test and a distribution to a nonhighly compensated employee is not included in the ADP test.

[Lori H]

21 hours ago, PensionPro said:

what is the purpose of filing form 5330?

I guess that is required if the refund does not occur prior to the 15th month following the close of the plan year, which in this case it does not.

 

[PensionPro]

42 minutes ago, Lori H said:

I guess that is required if the refund does not occur prior to the 15th month following the close of the plan year, which in this case it does not.

 

I am not aware of an excise tax owed by the plan sponsor on excess deferrals.

[JackS]

1 hour ago, PensionPro said:

I am not aware of an excise tax owed by the plan sponsor on excess deferrals.

Sorry, my answer was erroneous.  I was thinking excess contributions when I said "yes to the 5330" (since deleted).  I agree with PensionPro.

[Lori H]

Two more questions....should excess SH match be moved to a forfeiture holding account or returned to the plan sponsor and would allocable income be included?