Annually each November, we provide eligible employees with an estimate of their MEA for the next year (based on assumptions using prior year data). Then, we run the MEA calcs again at the end of the year using actual year data. From what I understand, the actual test needs to be completed before the end of the year to correctly process W-2's, yet, this means estimating at least a month or two of data which we then need to manually re-verify. We always seem to be scrambling around at the 11th hour doing data analysis so that correct final refund information makes it to the payroll by year end. Does anyone have a more simple approach to this madness? (It would seem logical to run the year end tests shortly following the end of the year when you'd know what the data is exactly, but we have been advised against it.)

After 14 years you are the first org that I have heard of that does calcs for its own employees. Why take this risk??? I have alwaya seen this responsibility passed on to the product providers. They have the software, the expertise AND the E & O. Also the IRS will most likely abate interest and charge no penalties as per Treas Regs 1.6662 etc if the error is attributable to "expert" or professional advice. Most of the orgs that I see or hear of includes this MEA calc as a condition of holding the payroll slot. The responsibility for proper calc is also usually part of the Hold Harmless.

George, the service provider actually does the calculations and prepares the communications, however, we are the ones to provide the data and coordinate refunds with Payroll. My question that I wanted to pose to other employers was how they handle the MEA calculation process. It seems so counter-productive the way we do things. However, I guess it may stay that way until Congress can give some 401(k)-type relief (meaning, something like being able to determine an employee's MEA using prior year data and make any adjustments the next year.)

Actually, Congress may do better than that. In the tax bill it passed and the President vetoed, the MEA calculation would have been eliminated altogether. I think a lot of us are hoping that that provision comes back in whatever bill ultimately gets enacted.
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Employee benefits legal resource site

Regarding Ms. Calhouns post, was the legislation attached to another bill? Whats the latest? Would love to not have to do MEA calc's!!

It was included in the minimum wage bill which passed each house of Congress before the recess. However, the two versions were somewhat different, so they will have to be reconciled by a Conference Committee, and escape a Presidential veto, in order to become law. And I've been in Washington long enough to know that no provision is certain until the President signs it--I've seen a lot of "sure things" evaporate!
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Employee benefits legal resource site

Our organization administers 403(B) Plans for public schools in California, Hawaii, Michigan and Texas. In February each year we provide all participants a Maximum Allowable Contribution (MAC) calculation based upon the previous year W-2 salaries. In the third quarter, we provide a MAC calculation based upon new contracts and step increases for employees. A final MAC calculation is done in early January based upon W-2 salaries. Throughout the year, all contributions are monitored for compliance so that contributions are stopped. This approach helps mitigate the year end scrambles.

Carol, can 403(B) refunds for a calendar year be made in January of the next year? Due to the size of our corporation (5,000+ employees) we have been advised that our refunds need to be made in the calendar year for which they apply to ensure correct W-2's and avoid excise taxes on refunds made from one of our investment providers, a 403(B)(7) corporation. If so, this would make the process easier. Please explain.

The 403(B) audit guidelines indicate that refunds in excess of the 402(g) deferral limit can be made up to April 15th of the next year, but the annuity contract must contain language to allow this and a 1099 would have to be issued. The money is considered to be taxable in the year of deferral if it is timely refunded. If you were able to process the refunds either right after the last pay period of the year, or early enough to include the info. on the W-2 it would seem like that wouldn't be a problem. It could be that your annuity provider's system may not be able to properly code a refund made after yeearend as coming from the prior year. See the 403(B) audit guidelines under the salary deferral section. Hope that helps.