Full Version: Deduction for Corrective Contribution
If an employer makes a corrective contribution in compliance with EPCRS do they get to deduct that contribution? If so, for what year?
Going from memory on this, so you'll certainly want to double check - for 415 purposes, the contribution relates to the limitation year for which the correction is made. For deduction purposes, because there is no similar special dispensation, the normal 404 rules apply. So while still generally deductible, you'd still be subject to the 25% of covered compensation limitation, between the make-up and any "normal" contribution for a given fiscal year. While this seems odd in some respects, I suppose it does avoid some gross manipulation that could otherwise take place - employers intentionally making a "mistake" to manipulate plan costs and contributions.
I'd like to bring this back up . . .
Is the corrective contribution deductible if it is replacing a deductible contribution made in years past? For example, what if the correction is not to make allocations to someone whose eligibility was overlooked, but to replace an overpayment to a terminated participant--i.e., the original contribution was deducted, and now the employer basically wants to take another deduction to replace those same $$ when they were paid out in error?
EPCRS says this:
A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply. (Emphasis added.)
Thoughts?
Is the corrective contribution deductible if it is replacing a deductible contribution made in years past? For example, what if the correction is not to make allocations to someone whose eligibility was overlooked, but to replace an overpayment to a terminated participant--i.e., the original contribution was deducted, and now the employer basically wants to take another deduction to replace those same $$ when they were paid out in error?
EPCRS says this:
A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply. (Emphasis added.)
Thoughts?
QUOTE (Sieve @ Jan 26 2011, 12:07 PM) 
I'd like to bring this back up . . .
Is the corrective contribution deductible if it is replacing a deductible contribution made in years past? For example, what if the correction is not to make allocations to someone whose eligibility was overlooked, but to replace an overpayment to a terminated participant--i.e., the original contribution was deducted, and now the employer basically wants to take another deduction to replace those same $$ when they were paid out in error?
EPCRS says this:
A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply. (Emphasis added.)
Thoughts?
Is the corrective contribution deductible if it is replacing a deductible contribution made in years past? For example, what if the correction is not to make allocations to someone whose eligibility was overlooked, but to replace an overpayment to a terminated participant--i.e., the original contribution was deducted, and now the employer basically wants to take another deduction to replace those same $$ when they were paid out in error?
EPCRS says this:
A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply. (Emphasis added.)
Thoughts?
I'd deduct that sucker as a current contribution.
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