Ervin Barham Posted March 8, 2001 Posted March 8, 2001 Calendar year plan calculated ADP/ACP tests and made correction of ADP/ACP amounts. Only problem was that they forgot to calculate the losses the plan "earned" during the year. Should this be treated as an "overpayment" and corrected by contacting the employees to retrieve those funds, if possible? Thanks.
lkpittman Posted March 8, 2001 Posted March 8, 2001 Hi Ervin--I would love to hear some answers to your question, because we have a similar situation. HCEs (about 100 of them) need to have a small amount returned (about $500) each. Employer really doesn't want to go to all the trouble of doing the safe harbor calculation of the "earnings" for each one; in addition, they know that there really are no earnings--just losses for the period. So, instead of doing the calculations and reducing the amounts to be returned, the employer is happy to just return the excess distribution amount and wants to know if this would be acceptable. I know that VCP correction for excess deferrals provides that earnings must be calculated and returned, but losses don't have to, but this isn't the same situation. Anyone have any thoughts on this? LKP
Alf Posted March 8, 2001 Posted March 8, 2001 Losses really have to be taken into account or else you really haven't made a timely distribution of the excess contribution (plus allocable "income"), so you haven't really followed your plan or the I.R.C.. If you are still within the distribution deadline period, you should try and get the losses back. If the deadline has expired, you will have to self correct under the I.R.S. self correction methods. You should contact the participants and get them to pay the overpayment back. There W-2s should be revised to show the amount the distribution should have been, not what it was.
lkpittman Posted March 8, 2001 Posted March 8, 2001 Wait a minute--how are W-2s involved? Don't you mean 1099-R? And no revision should be necessary, as the excess amount should be reported on 2001 1099-R as a 2000 transaction (i.e., taxable in 2000). Earnings are a separate 1099-R as a 2001 transaction. Am I missing something? LKP
Kristina Posted March 8, 2001 Posted March 8, 2001 Based on the instructions to the 1099R for 2000 (page R-4) a fair argument could be made that you returned too much and must correct. Kristina
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