Must a plan pay a corrective distribution of $0.04?

[Peter Gulia]

A participant’s salary-reduction agreement called for $961.54 per pay.  The employer did this for all 26 pay periods, with no change to December’s last pay.  The participant’s deferral limit for 2019 is $25,000 [$19,000 + $6,000 age 50].

 

Assume the employer/administrator is unwilling to use the plan’s provision for a return of a mistaken contribution.

 

Must the plan’s administrator instruct the plan’s trustee to pay the participant a corrective distribution of $0.04?

 

Is there any non-frivolous argument for treating this as so small that a correction is unnecessary?

[Bird]

58 minutes ago, Peter Gulia said:

Is there any non-frivolous argument for treating this as so small that a correction is unnecessary?

Yes.  It is so small that a correction is unnecessary.  What is frivolous about that argument?

[Peter Gulia]

Bird, thank you for reminding me that often I wish we had an environment with less dependence on government agencies specifying every detail and more room for prudent judgment.

 

Yet, about the limits and requirements of tax-qualified retirement plans, clients have become conditioned to presume there is an administrative-law answer to every question.

[Mike Preston]

I would recommend disgorging, but I have no problem with no reporting. 

[Larry Starr]

2 hours ago, Mike Preston said:

I would recommend disgorging, but I have no problem with no reporting. 

I vote for no reporting, and booking only the $25k deferral and ignoring the four cents.

[Bill Presson]

7 minutes ago, Larry Starr said:

I vote for no reporting, and booking only the $25k deferral and ignoring the four cents.

In a pooled investment environment where the TPA is also the recordkeeper, this is easily done. In a daily valued environment, where there is a recordkeeper allocating every penny? Not so easily done.

[Larry Starr]

6 hours ago, Bill Presson said:

In a pooled investment environment where the TPA is also the recordkeeper, this is easily done. In a daily valued environment, where there is a recordkeeper allocating every penny? Not so easily done.

Yes; understood.  Another good reason for pooled plans! ?

[Old Lawyer]

Take a look at AO 77-08, which acknowledges that de minimis recoupment need not be undertaken, even if a strict reading of a statute or regulation would require the action.  The principle appears applicable to the fact pattern.

[Mike Preston]

59 minutes ago, Old Lawyer said:

Take a look at AO 77-08, which acknowledges that de minimis recoupment need not be undertaken, even if a strict reading of a statute or regulation would require the action.  The principle appears applicable to the fact pattern.

Not to me.  The only issue I'm concerned about is 401(a)(30). There is no leway for that section, is there?

[Kevin C]

On ‎3‎/‎3‎/‎2020 at 3:58 PM, Bill Presson said:

In a pooled investment environment where the TPA is also the recordkeeper, this is easily done. In a daily valued environment, where there is a recordkeeper allocating every penny? Not so easily done.

Our daily software won't trade any amount that would cause someone to exceed the 402(g) limit.  So, the $.04 would be sitting in cash.  I would use the $.04 towards the employer contribution and tell the client they owe him $.04, which is the same as Larry's suggestion. 

[BG5150]

22 hours ago, Old Lawyer said:

Take a look at AO 77-08, which acknowledges that de minimis recoupment need not be undertaken, even if a strict reading of a statute or regulation would require the action.  The principle appears applicable to the fact pattern.

Do you have a link to that?

[Mike Preston]

23 minutes ago, BG5150 said:

Do you have a link to that?

Hardly needed. Arguing that 4 cents recoupment would be a hardship is a non-starter.

[BG5150]

Just now, Mike Preston said:

Hardly needed. Arguing that 4 cents recoupment would be a hardship is a non-starter.

I just wanted to see the text of AO 77-08.

[Mike Preston]

18 minutes ago, BG5150 said:

I just wanted to see the text of AO 77-08.

Reading the links that are returned based on a search for DOL Advisory Opinion 77-08 one can see that it has no relevance here. One, it is DOL and I'm concerned with violation of the IRC. Two, it is about relieving fiduciary liability when not asking participants to pay back over-distributions.  That isn't this fact pattern, either.