401K -- Highly compensated employees

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What is the name of your state? Minnesota
(Company headquarters is in Massechusetts)

My company apparently violated the rules regarding 401K contributions for highly compensated employees. As a result they must return the amount overpaid in 2004 to some employees. I just received a check in the mail from some Trust fund/company for the amount I overpaid less a $15.00 check processing fee. My questions are:

1. Why am I charged a processing fee for a company mistake? Shouldn't the complany pay?
2. How does this affect my 2004 taxes (which have already been filed). The money returned did not make any allowances for taxes (the 401K contributions were withdrawn pre-tax, so I'm assuming I should now owe taxes on the amount returned).

 

[Beth3]

I doubt your employer made a mistake. 401(k) Plans are required to undergo annual discrimination testing which requires that those employees defined as highly compensated under the relevant regulation cannot contribute more than "X%" of those who are not highly compensated. This testing can only be done after the Plan year is completed because it all depends on how much all the employees actually defer. I've had money returned to me on several occasions because of the annual test.

1. Why am I charged a processing fee for a company mistake? Shouldn't the complany pay? Again, I seriously doubtyour company made a mistake.

2. How does this affect my 2004 taxes (which have already been filed). The money returned did not make any allowances for taxes (the 401K contributions were withdrawn pre-tax, so I'm assuming I should now owe taxes on the amount returned). I believe the money is taxable in the year in which it is returned to you. You may want to make a quick call to the IRS to verify that but I recall declaring it as income during the year I received the money back, not during the year I earned it.

 

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Highly compenstated employees

Correct -- the company did not make a mistake regarding the 401K plan. They did however, finally admit that they botched the way employees were notified. The $15 check processing fee was a mistake and employees will receive a refund.