a distribution should be made to the participant of the excess deferrals plus earnings. Also, matching contributions related to the excess deferrals (adjusted for earnings) should be forfeited and reallocated to other participants or to an unallocated account to offset future matching contributions. If an employee made deferrals that were less than what should have been made had the correct definition of compensation been used, the employee should receive a corrective QNEC in the appropriate amount. Also, the employee should receive a corrective employer-matching contribution, if applicable, in the appropriate amount. Excess Deferrals/Allocations The maximum amount that an employee may elect to defer into a qualified plan may not exceed the limit imposed under Code Section 402(g), which is $22,500 for 2023, without regard to any catch-up contributions. Also, the maximum total amount (including employee deferrals and employer contributions) that may be allocated to an employee’s account cannot exceed the lesser of 100% of an employee’s compensation (up to $330,000 in 2023) or the Code Section 415(c) limit ($66,000 in 2023). In the event an employee makes deferrals in excess of the Code Section 402(g) limit, the excess deferrals must be distributed to the employee by April 15 of the year following the year of deferral. If the excess deferrals are not distributed by the April 15 deadline, the plan will need to correct the error through the applicable procedure under EPCRS. To the extent an employee receives allocations (employee deferrals and employer contributions) in excess of the Code Section 415(c) annual additions limit, a general three-step correction procedure applies to correct the error, which is outlined under EPCRS. Excess Participant Loans Participant loans may or may not be allowed under a plan and plan sponsors should ensure their plan document allows participant loans before allowing an employee to borrow money from the plan. Participant loans must satisfy several rules under Code Section 72(p), among other rules, so the loan is not treated as a taxable distribution. For example, a loan generally cannot exceed 50% of an employee’s vested account balance, up to a maximum of $50,000; provided, however, a loan of up to $10,000 is nontaxable even if the amount exceeds 50% of the employee’s vested account balance, if permitted by the plan. In the event a plan loan exceeds the limitations under Code Section 72(p), the affected employee must repay the excess loan and, if needed, re-amortize the remaining principal balance over the loan’s original amortization schedule. The foregoing is only one aspect of the rules under Code Section 72(p) and any excess plan loans should be more fully analyzed to ensure compliance with Code Section 72(p). The correction of excess participant loans is generally the same under self-correction and VCP, but the circumstances will dictate whether self-correction is available. The foregoing represents only a few of the most common potential errors that could arise in connection with any 401(k) plan audit. Any professional reviewing a 401(k) plan’s operations should understand all the potential issues that could impact the operation of the 401(k) plan. The use of a 401(k) plan audit is a useful tool used to identify and resolve any issues that do arise. Peter Langdon is an attorney in Koley Jessen’s Employment and Benefits Department. With extensive experience advising clients on employee benefits, executive compensation, nonqualified deferred compensation, and general employment law matters, he is well-equipped to navigate the complex landscape of employee benefits. For further inquiries, contact Langdon at peter.langdon@koleyjessen.com. CLASSIFIED AD Schumacher, Smejkal & Elm is seeking an individual with a bachelor’s or associate degree in the accounting or business field. An Enrolled Agent or Certified Public Accountant credential is preferred. Tax-return planning and preparation experience required. Applicants should be accurate, detail-oriented, and possess good communication and analytical skills. We offer a competitive starting wage of $75,000-$100,000, with opportunities for growth in the future. Generous Benefits Package! Contact: Troy Paben • Schumacher, Smejkal & Elm (402) 564-1366 • troyp@gotcpas.com Immediate Opening for Tax Accountant Columbus, Nebraska 25 www.nescpa.org
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