How do you correct an excess deposit to a deferral account?

[Guest]

If an employer makes deposits of "more" than a what participant actually deferred, how do you correct that? Transfer to forfeiture account? Is this a correction under EPCRS?

[Bill Berke]

Please give details.

[Guest]

One EE deferred $1750, ER deposited $1900; another EE deferred $5200, ER deposited $5325.75 and it goes on for a few other employees. The excess was not a match or ER discretionary contribution. It was an error. Does this help?

[Richard Anderson]

Need more details. Were any of the deposits made after the end of the plan year? Is there going to be a match or ps contribution? Were any deposits less than what was deferred by the employee? Does the plan pass ADP test? Will excess contributions need to be refunded or QNECs allocated? If this is a Safe Harbor 401(k) has the safe harbor contribution already been deposited?

[Guest]

Contributions were not made after the end of the year. The contributions were made in 2000. I haven't gotten as far as the ADP Test yet. Do you have any idea how to handle amounts deposited in participants deferral account by mistake?

[Richard Anderson]

If the person is going to get a match or ps contribution, move the deferral "overdeposit" to the match or ps account.

[Guest]

The match has already been made (match as you go)and there will be no discretionary contribution.

[Bill Berke]

I think the lawyers will go crazy with this answer, but when I have a situation like this, I take a liberal view of return due to "mistake in fact" and return the contribution to the employer. But I would suggest that you "true up" the match to make sure you don't need any of this money to fix match error.I gather that defrrals and match are the only contributions to this plan. The problem is that unless you are exceeding 415, you must allocate all contributions. So, I use mistake of fact and I have never had a problem on audit whenever this type of mistake has happened provided employees got everything they were supposed to. And you should make sure that employer puts in double check procedure to avoid repeat of error.

[Guest]

Thank you. That works for me.