Corrective Distributions > $75

[LANDO]

I'm having trouble getting my head around the rules in EPCRS about when a sponsor doesn't have to make a corrective distribution of small benefits.

EPCRS Section 6.02(5)(b) says: Delivery of small benefits. If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a current or former participant, without regard to the amount of the corrective contributions.

My questions are:

• What may be considered a "corrective distribution"? Like are corrective distributions limited to 415 excess, 402(g) excess, and ADP/ACP refunds?
• When it says "This section 6.02(5)(b) does not apply to corrective contributions.", does that mean corrective contributions for former participants with no balance still have to made if the amount is < $75 or the actual cost of making a distribution, even if the TPA's cost for making a distribution will wipe out the benefit?
  • Can corrective contributions for former participants with no balance be forfeited if they are less than $75 or the cost of making the distribution?
• Essentially, how liberally can this section be used to avoid having to fund small corrections to terminated participants with no balance?

[Paul I]

I see "corrective distribution" more like a generic term for anything that must be paid out of the plan as a result of an correction or remedial action.  It would include you list plus things like QNECs credited to terminated participants, income of late deposits...

A corrective contribution due to an active participant or a former participant with an account balance must be credited with the corrective contribution regardless of the size of the amount. 

If a corrective contribution is due to a participant who is paid out and the cost of paying is out is less than $75, then my understanding is the corrective contribution does not have to be paid.  Be careful using this exception.  There are some situations where these amounts must be reallocated to the other participants who are receiving the corrective contributions.  (For example, if I recall, lost earnings allocations may fit this situation.) Similarly, with some corrections that require allocating additional contributions to participants, the allocation must be "meaningful" so, for example, it cannot be allocated to a terminated, non-vested participant and immediately forfeited.

I do find it interesting that the rules do not actually prevent writing very small checks.  For example, if a former participant gets a $76 corrective contribution and the cost of processing the distribution is $75, the net check to the participant is $1.  The recordkeeper may get $75, the participant laughs at the check and doesn't cash it, the plan deals with uncashed checks, and the auditors get to make a management comment.

Bottom line, follow the rules and live with the results.