In the event of operational errors resulting in excess employee deferrals or employer contributions being remitted, guidance for correcting such errors is found in, the Employee Plans Compliance Resolution System (EPCRS) (1).
These deposits would instead be treated as "excess allocations," which require that the excess allocated amount adjusted for earnings be removed from the participant's account and forfeited, reallocated or used to reduce employer contributions depending on the situation.
Returning funds to your business account, when there was no actual mistake of fact can jeopardize your plan’s qualified status. If a plan becomes disqualified, both employer and participant contributions will lose their tax qualified status, causing significant adverse tax consequences including late payment penalties, for both the participants and the employer. Given the very limited instances where refunds to the employer are permissible and the significant consequences for improper reversion, we discourage sponsors from requesting a refund of payments made to the plan. If you are considering a mistake of fact request but are uncertain, you should seek the advice of an ERISA attorney. Please see this article if your contributions do not fall under the mistake of fact classification or this article to make a mistake of fact request.
(1) The content of this website is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances.