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ACP refund due... but this year's match not deposited yet


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Something I would have been sure of yesterday, but now...

Plan has been around forever and fails ACP this year.  The 2023 match has not been deposited yet, but the affected HCE has plenty of match source money from previous years.  The platform is refusing to process the refund because the contribution to which it refers has not been deposited.  is that a reasonable position to take?

Thanks.

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5 minutes ago, AlbanyConsultant said:

Interesting.  I suppose that might be a reasonable thing to say if the match was discretionary - I'll have to check if this one is.

I'm not saying that is  the reason, but it's valid. Even if it's required, what happens if the sponsor goes bankrupt say next week and say's "I don't care if it's required by the document we don't have the money, let the Trustee make a claim in bankruptcy court."

Just playing devil advocate. I can see valid arguments for not doing the ACP refunds until the match is actually deposited.

Don't want to pay the excise tax for refunds after 3/15? Simple, fund the match before 3/15 so we can process the refunds.

Again not saying which is right or wrong, just presenting an argument for why a custodian might not process it which may or may not be spelled out in their contract.

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7 hours ago, AlbanyConsultant said:

The platform is refusing to process the refund because the contribution to which it refers has not been deposited.

This comment is interesting since it implies that there is a time-based sequencing or labeling of match contributions as regular match or excess match.  There is no such labeling and regulation that says match refunds must be made from LIFO (Last In First Out) match contributions.

Not making a refund does not make sense when the participant has had match credited during the year that is sufficient to cover the refund.  The ACP should have been done using the fully accrued match contribution and the refund can be done if the any of the match has been funded.  The company is obligated to fund the match by the time funding is required to be made under the terms of the plan document and if that happens to be receivable at the time of testing, so be it. 

There can be an argument if the participant needs to get a refund and there is no or insufficient match has been made to the participant's match account during the plan year.  This is highly unlikely, but could happen.  In this case, the plan can make a refund to the extent there is current year match available in the participant's account, and refund the balance when the remaining match is deposited.

Not making any refunds to all participants because one participant did not have a sufficient amount available to cover the refund is inappropriate.

If the service provider is adamant but this is the only part of their service that is not satisfactory, then discontinue their compliance services and hire an independent TPA to provide compliance services.  Then the existing service provider need only write a check when instructed to do so.

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15 hours ago, Gilmore said:

Is the plan an EACA that would allow for an extended testing window?  If not, does the document allow for the match to HCEs to be reduced so as not to fail the ACP test?

No, this isn't an EACA, and the plan document does not allow only the "net" match to be made.

I think it's common for a platform vendor to have a deposit tagged to a certain plan year, and it's becoming more frequent that they are using that information to limit transactions under the idea of trying to prevent errors.  YMMV on how useful that is.  A couple of years ago, I had a sole prop who deposited $10K in deferrals in January for himself for the prior year but he coded it in the current year.  When he went to make his full deferral deposit for the current year in the current year, the platform blocked it because it was counting that prior year's receivable and it flagged him as going over the limit.  It took way too much effort to get that first deposit changed.  But I can see how they are trying to "help".
 

12 hours ago, Paul I said:

There can be an argument if the participant needs to get a refund and there is no or insufficient match has been made to the participant's match account during the plan year.  This is highly unlikely, but could happen.  In this case, the plan can make a refund to the extent there is current year match available in the participant's account, and refund the balance when the remaining match is deposited.

I think we've all had this happen once or twice; luckily that is not the situation here.

17 hours ago, Lou S. said:

Again not saying which is right or wrong, just presenting an argument for why a custodian might not process it which may or may not be spelled out in their contract.

I think this is a good takeaway - while they give you a miles-long contract, hopefully, it specifies things like this so you can know what to expect.

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On 3/16/2024 at 9:25 AM, Peter Gulia said:

I don’t know what might be correct or incorrect on the underlying question. But here’s an observation:

In situations in which a recordkeeper seeks to impose its rule despite the plan administrator’s readiness, after it considers a lawyer’s or other practitioner’s advice, to deliver a written instruction (one within the service agreement) and even expressly indemnify the recordkeeper for following the instruction, we sometimes remind the recordkeeper that:

they say they do not give tax or other legal advice, and

they say they lack discretion to administer the plan.

In my experience, the recordkeeper’s reluctance to process a proper instruction fades quickly.

Thanks for this reminder, Peter. I don't think we remember to lean on this often enough.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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