(b)lines Ask the Experts – Catching Up on Limits, Testing and Form 5500

Michael A. Webb, vice president, Retirement Practice, Cammack LaRhette Consulting, answers:

The Experts certainly emphasize, as it has been a rough winter in many parts of the country. But, with cancelled meetings and refocused priorities, it can certainly be an excellent time to catch up, or simply get organized!

For your Employee Retirement Income Security Act (ERISA) 403(b) plan, the following action items come to mind:

• Now is the time many individuals file their tax returns, so, even though the deadline for a refund of a 2013 excess deferral is April 15, you will want to make certain any excess deferrals are addressed so affected participants file their returns properly. Review payroll records for anyone who has exceeded the 402(g) limits in 2013. It is a multiple step process, as you must determine who exceeded the base limit ($17,500), and confirm those who could exceed the base limit due to the use of the age-50 or 15-year (if applicable) catch-up elections. Finally, for this latter group of individuals, you need to confirm that they did not exceed their expanded limit given their election (for example, $23,000 for those who only utilize the age-50 catch-up). Once the excesses have been determined, refunds should be requested from the plan’s recordkeeper(s), and affected participants should be immediately informed of the principal amount of the excess so they can declare it as income on their 2013 tax returns. If a participant has already filed his/her return without declaring the excess as income, the participant should file an amended return. 
• If your plan provides for a matching contribution, make certain the nondiscrimination testing process is well under way so, if there is a matching contribution test failure, otherwise known as an average contribution percentage (ACP) test failure, refunds are issued by the March 15 deadline to avoid an employer penalty. This deadline was discussed in detail in a recent Ask the Expert column (see “Ask the Experts – Deadline for Corrective Distributions”). 
• Finally, even though the Form 5500 for calendar year plans is still several months away, it is never too early to reach out to your plan auditors to discuss any issues encountered in last years’ audit and what is being done to prevent a recurrence, as well as a timeline for completion of the audit. The timing would also be appropriate to reach out to the plan recordkeeper(s) to determine the timing of the delivery of their audit package, as well as any issues they may have in this regard.