We have a situation wherein employees of a noncontrolled group employer that did not adopt Plan A were permitted to participate in Plan A. They began participation on 1-1-04. This was recently discovered. To correct this, we decided to distribute the deferrals made by the employees of the ineligible employer. There are some employees of the ineligible employer that rolled over funds into Plan A. The service provider is saying that no only will the distributed deferrals be taxed, but that the rolled-over funds will be taxed as well since it is outside the 60-day window to rollover.

Thoughts? Suggestions?

With regard to the distribution of deferrals, don't forget to distribute applicable earnings as well....

What about a retroactive amendment under VCP? See similar post:

http://benefitslink.com/boards/index.php?showtopic=25048

Thanks for the reminder.

Any thoughts on the rollover issue?