Sample Refund Letters

This document contains sample refund letters available for your company to utilize when providing refund checks to participants and/or explaining why an amount was forfeited from his/her account.  

To utilize the letters, follow the steps below:

Step 1: Copy and paste the appropriate letter(s) on to your company letterhead.

Step 2: Refer to the refund types and amounts on the Refund Summary Report to complete the letters.

Step 3: Distribute the letter(s) and refund checks (if applicable) to the appropriate participant(s).

The tables below outline what page(s) you would utilize for each refund type.

  If ADP was able to process the refunds and/or forfeitures:

Failed Test	Refund Type(s) from Refund Summary Report	Copy the sample letter on page(s)	
402(g)	01 and 06	2-4	
415 Annual Additions	09, 10, and 11	5-6	
Plan Deferral Limit	08	7-8	
Plan Match Limit	05	9	
Actual Deferral Percentage (ADP)	02 and 07	10-11	
Actual Contribution Percentage (ACP)	03 and 04	12-13	

  If ADP was not able to process the refunds and/or forfeitures:

Failed Test	Refund Type(s) from Refund Summary Report	Copy the sample letter on page(s)…	
402(g)	01 and 06	14-16	
415 Annual Additions	09, 10, and 11	17-18	
Plan Deferral Limit	08	19	
Plan Match Limit	05	20	
Actual Deferral Percentage (ADP)	02 and 07	21-22	
Actual Contribution Percentage (ACP)	03 and 04	23-24	
.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed 402(g) Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you directly. Some of your contributions have been determined to be excess amounts according to the test results and must be returned to you and/or forfeited (removed from your account).

Excess Deferral - Type 01

A.	Excess Roth Contributions			$_________
B.  Excess Non-Roth Contributions		$_________
C.	Gain/(Loss)					$_________
D.	Total Refund					$_________
E.	Tax Withheld					$_________
F.	Total Check Amount			 	$_________

Associative Match Adjustment - Type 06 (Excess Match Due to Failed 402(g) Test)

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)					$_________
C.	Amount Forfeited				$_________

What are Excess Deferrals?

Internal Revenue Code Section 402(g) limits the amount of Salary Deferrals allowed. Excess deferrals to a 401(k) plan (salary deferrals which exceeded $19,000 during calendar year 2019 or $25,000 if catch-up eligible) must be returned (refunded) to you. 

Are Excess Deferrals taxable?

Excess Deferrals that were contributed as Roth Contributions are not taxable distributions unless they are distributed after April 15 of the year after the contribution was made. In that case they are taxable in the distribution year.

Excess Deferrals that were contributed as non-Roth Contributions are taxable distributions for the year they were contributed. If they are distributed after April 15, they are taxable for both the year contributed and the year distributed. 

Gain/Loss is always taxable income in the distribution year. If it is a loss, there is a Special Instruction Statement attached to this letter as required by the IRS that explains how to reflect the loss in your taxes so you receive the credit for the loss.

Is Income Tax withheld from the distribution?

There is no income tax withheld from the distribution of Excess Deferrals.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Deferrals reported to me and to the government?

A Form 1099-R is sent to you in January of the year after the distribution. 

What happens if the company provided me a match on the Excess Deferral?

If there is an employer matching contribution associated with the Excess Deferrals, the matching contribution is forfeited, regardless of vesting.

Special Instructions - 402(g) Excess Salary Deferrals with 'Loss' in the Year 2019
In accordance with IRS Regulations, we are providing you with this SPECIAL INSTRUCTION STATEMENT to explain the proper tax reporting of your excess 402(g) Excess Deferral and the associated 'Loss' for Tax Year 2019.
•	On your 2019 Year Form 1040 you are required to enter the entire amount of the Excess Deferral (Failed 402(g) Test) Amount on Line 7. DO NOT REDUCE THIS AMOUNT BY THE LOSS.
•	On your Form 1040 for the year of distribution you may enter the 'Loss' as an offset to income. This is done by entering the amount of the 'Loss' (negative Attributable Income) as a negative number on the 'OTHER INCOME' Line.
NOTE: YOU WILL RECEIVE A 1099-R SHOWING THE NET AMOUNT OF DISTRIBUTION (EXCESS SALARY DEFERRAL MINUS THE AMOUNT OF 'LOSS'). THE 1099-R WILL CARRY A CODE INDICATING THAT THE EXCESS SALARY DEFERRAL WAS TAXABLE IN THE YEAR IT WAS DEFERRED.
EXAMPLE:
Mr. Jones exceeded his $19,000 Salary Deferral Limit (402(g) limit) by $1,000 so his Excess Salary Deferral is $1,000 for Year 2019.  His account lost money in 2019 and it was determined that the pro rata share of loss was $100. Mr. Jones received a refund check in the amount of $900 in February of 2020, but he must report and pay tax on the full $1,000 Excess Deferral by entering $1,000 on Line 7 of his Year 2019 1040.  He will be entitled to take the $100 loss as an offset to his income in 2020 (the year the Excess was actually distributed) by entering the amount as a negative on the OTHER INCOME line of his Year 2020 1040 Form.
If your Excess Salary Deferral is not distributed from the plan until after April 15, 2020, then you will be penalized by having to pay tax on the Excess Salary Deferral for both the Year of deferral—2019 and the Year of distribution—2020.
AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed 415 Annual Additions Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results and must be returned to you and/or forfeited (removed from your account).

Excess Employee Deferral Annual Additions – Type 09 

A.	Excess Roth Contributions			$_________
B.	Excess Non-Roth Contributions		$_________
C.	Gain/(Loss)					$_________
D.	Total Refund					$_________
E.	Tax Withheld					$_________
F.  Total Check Amount				$_________

Excess Voluntary After-Tax Annual Additions – Type 10 

A.	Excess Voluntary After-Tax Contributions	$_________
B.	Gain/(Loss)		$_________
C.	Total Refund		$_________
D.	Tax Withheld		$_________
E.	Total Check Amount		$_________

Excess Employer Contribution Annual Additions – Type 11

A.	Excess Employer Contributions		$_________
B.	Gain/(Loss)					$_________
C.	Amount Forfeited				$_________

What are Excess Annual Additions?

The Internal Revenue Code limits the annual combined amount of contributions (annual additions) to a participant’s account. For 2019, the amount is limited to the lesser of 100% of compensation or $56,000 (an additional $6,000 may be available for catch-up eligible employees). If the plan year is not 12 months long, the $56,000 compensation limit is adjusted to reflect the reduced number of months. For example, if the plan year is 5 months long, the $56,000 is replaced with $23,333 which is 5/12 of the $56,000. 

How are Excess Annual Additions corrected?

If the Excess Annual Additions are due to salary deferrals, they are refunded. The distribution is adjusted for any gain/loss through the date of distribution. 

If the Excess Annual Additions are due to employer contributions, they are forfeited along with any gain/loss through the date of distribution. 

Are Excess Annual Additions taxable?

Excess Annual Additions that were contributed as Roth Contributions (or Voluntary After-Tax Contributions) are not taxable distributions. However, any gain/loss that is distributed is taxable in the year distributed. 

Excess Annual Additions that were contributed as non-Roth Contributions and any gain/loss on the pre-tax non-Roth Contributions are taxable distributions for the year distributed.
 
Since Excess Annual Additions due to employer contributions are forfeited, they are not taxable to you. 

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Annual Additions reported to me and to the government?

A Form 1099-R will be sent to you next January. 

What happens if the company’s contribution (Match, Profit Sharing (Nonelective Contribution, etc.) is an Excess Annual Addition?

If the Excess Annual Addition is a company contribution, the amount along with any gain/loss through the date of distribution is forfeited, regardless of vesting. 

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed Plan Deferral Limit Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results and must be returned to you and/or forfeited (removed from your account).

Plan Deferral Limit Excess – Type 08

A.	Excess Roth Contributions			$_________
B.	Excess Non-Roth Contributions		$_________
C.	Gain/Loss					$_________
D.	Total Refund					$_________
E.	Tax Withheld					$_________
F.	Total Check Amount				$_________

What is a Plan Deferral Limit Excess?

The plan provisions limit the amount that a participant may contribute. If this amount is exceeded, it is called a Plan Deferral Limit Excess and must be returned to you. The distribution is adjusted for gain/loss through the date of distribution.

Are Plan Deferral Limit Excesses taxable?

Plan Deferral Limit Excesses that were contributed as Roth Contributions are not taxable distributions.
 
Plan Deferral Limit Excesses that were contributed as non-Roth Contributions are taxable distributions for the year they are distributed. 

Gain/Loss is always taxable income for the year distributed. 

Is Income Tax withheld from the distribution?

There is 10% federal income tax withheld from the distribution of the gain (if any) as well as the non-Roth Contributions, unless you notify the Plan Administrator in advance to have more income tax withheld. In addition, if you reside in a state that requires state tax to be withheld, state tax at the state rate will be withheld. 

If the address for the distribution is outside of the U.S., then the federal tax withholding rate is 30% instead of 10%.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Plan Deferral Limits reported to me and to the government?

A Form 1099-R is sent to you in January of the year after the distribution.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed Plan Match Limit Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results and must be forfeited (removed from your account).

Plan Match Limit Excess – Type 05 

A.	Excess Matching Contributions	$_________
B.	Gain/(Loss)				$_________
C.	Amount Forfeited			$_________

What are Plan Match Limit Excesses?

The plan provisions limit the amount that a participant may receive as a Matching contribution. If this amount is exceeded, it is called a Plan Match Limit Excess and must be forfeited regardless of vesting. The forfeiture is adjusted for gain/loss through the date of distribution.

Are Plan Match Limit Excesses taxable?

Since Plan Match Limit Excesses are forfeited, they are not taxable income to you.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed ADP Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results and must be returned to you and/or forfeited (removed from your account).

Excess Contribution – Type 02

A.	Excess Roth Contributions			$_________
B.	Excess Non-Roth Contributions		$_________
C.	Gain/(Loss)					$_________
D.	Total Refund  					$_________
E.	Tax Withheld					$_________
F.	Total Check Amount 			 	$_________

Associative Match Adjustment – Type 07 (Excess Match Due to Failed ADP Test)

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)					$_________
C.	Amount Forfeited				$_________

What are Excess Contributions?

The Actual Deferral Percentage or ADP test ensures there is an equitable balance between the salary deferrals made by the Highly Compensated Employees (HCEs) and those made by the Non-Highly Compensated Employees (NHCEs). For a failed ADP test, the Excess Contributions are returned to the HCEs. 

Are Excess Contributions taxable?

Excess Contributions that were contributed as Roth Contributions are not taxable distributions. 

Excess Contributions that were contributed as non-Roth Contributions are taxable distributions for the year they were distributed. 

Gain/loss on both Roth and non-Roth Contributions is always taxable income for the year distributed.

Is Income Tax withheld from the distribution?

There is 10% federal income tax withheld from the distribution of the gain (if any) as well as the non-Roth Contributions, unless you notify the Plan Administrator in advance to have more income tax withheld. In addition, if you reside in a state that requires state tax to be withheld, state tax at the state rate will be withheld. 

If the address for the distribution is outside of the U.S., then the federal tax withholding rate is 30% instead of 10%.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Contributions reported to me and to the government?

A Form 1099-R is sent to you in January of the year after the distribution. 

What happens if the company provided me a match on the Excess Contribution?

If there is an employer matching contribution associated with the Excess Contribution, the matching contribution is forfeited, regardless of vesting.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 1 – For a participant who still has money in the plan and who is receiving a check or having money forfeited 

Sample Letter for Failed ACP Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results and must be returned to you and/or forfeited (removed from your account).

Excess Aggregate Matching Contribution – Type 03

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)		$_________
C.	Amount Forfeited		$_________
D.	Total Refund		$_________
E.	Tax Withheld		$_________
F.	Total Check Amount		$_________

Excess Aggregate Voluntary After-Tax Contribution – Type 04

A.	Excess Voluntary After-Tax Contributions	$_________
B.	Gain/(Loss)		$_________
C.	Total Refund		$_________
D.	Tax Withheld		$_________
E.	Total Check Amount		$_________

What are Excess Aggregate Contributions?

The Actual Contribution Percentage or ACP test ensures there is an equitable balance between the matching contribution (and Voluntary After-Tax Contribution if any) received by the Highly Compensated Employees (HCEs) and those received by the Non-Highly Compensated Employees (NHCEs). For a failed ACP test, the Excess Aggregate Contributions are returned to the HCEs. 

Are Excess Aggregate Contributions always refunded?

Excess Aggregate Contributions are refunded if you are vested in the plan. If you are not vested or only partially vested as of the end of the plan year being tested, the unvested portion is forfeited. 

Are Excess Aggregate Contributions that are refunded taxable income?

For type 3, Excess Aggregate Contributions that were refunded are taxable income for the year distributed.

For type 4, Excess Aggregate Contributions that were refunded have had taxes already paid on the money and are not taxable. 

The gain/loss that is refunded is taxable income for the year distributed.

Is Income Tax withheld from the distribution?

There is 10% federal income tax withheld from the distribution, unless you notify the Plan Administrator in advance to have more income tax withheld. In addition, if you reside in a state that requires state tax to be withheld, state tax at the state rate will be withheld. 

If the address for the distribution is outside of the U.S., then the federal tax withholding rate is 30% instead of 10%.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Aggregate Contributions reported to me and to the government?

A Form 1099-R is sent to you in January of the year after the distribution if you receive a refund of the Excess Aggregate Contributions. If the Excess is forfeited, then it is not reported to you or the government since it is not taxable income to you.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed 402(g) Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Excess Deferral - Type 01

A.	Excess Roth Contributions					$_________
B.  Excess Non-Roth Contributions				$_________
C.	Gain/(Loss)							$_________
D.	Total Refund
•	Remove from rollover (if applicable)			$_________

Associative Match Adjustment - Type 06 (Excess Match Due to Failed 402(g) Test)

A.	Excess Matching Contributions				$_________
B.	Gain/(Loss)							$_________
C.	Amount Forfeited 
•	Remove from rollover (if applicable) 
•	Return to Company						$_________

What are Excess Deferrals?

Internal Revenue Code Section 402(g) limits the amount of Salary Deferrals allowed. Excess deferrals to a 401(k) plan (salary deferrals which exceeded $19,000 during calendar year 2019 or $25,000 if catch-up eligible) must be returned (refunded) to you. 

Are Excess Deferrals taxable?

Excess Deferrals that were contributed as Roth Contributions are not taxable distributions unless they are distributed after April 15 of the year after the contribution was made. In that case they are taxable for the year distributed.

Excess Deferrals that were contributed as non-Roth Contributions are taxable distributions for the year they were contributed. If they are distributed after April 15, they are taxable for both the year contributed and the year distributed. 

Gain/Loss is always taxable income for the year distributed. If it is a loss, there is a Special Instruction Statement attached to this letter as required by the IRS that explains how to reflect the loss in your taxes so you receive the credit for the loss.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Deferrals reported to me and to the government?

A Form 1099-R will be sent to you next January. If you already received a Form 1099-R for your original distribution, you will receive an amended Form 1099-R, by next January 31st, reflecting the taxation of the distribution.

What happens if the company provided me a match on the Excess Deferral?

If there is an employer matching contribution associated with the Excess Deferrals, the matching contribution is forfeited, regardless of vesting. If you received, as a portion of your distribution, money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Special Instructions - 402(g) Excess Salary Deferrals with 'Loss' in the Year 2019
In accordance with IRS Regulations, we are providing you with this SPECIAL INSTRUCTION STATEMENT to explain the proper tax reporting of your excess 402(g) Excess Deferral and the associated 'Loss' for Tax Year 2019.
•	On your 2019 Year Form 1040 you are required to enter the entire amount of the Excess Deferral (Failed 402(g) Test) Amount on Line 7. DO NOT REDUCE THIS AMOUNT BY THE LOSS.
•	On your Form 1040 for the year of distribution you may enter the 'Loss' as an offset to income. This is done by entering the amount of the 'Loss' (negative Attributable Income) as a negative number on the 'OTHER INCOME' Line.
NOTE: YOU WILL RECEIVE A 1099-R SHOWING THE NET AMOUNT OF DISTRIBUTION (EXCESS SALARY DEFERRAL MINUS THE AMOUNT OF 'LOSS'). THE 1099-R WILL CARRY A CODE INDICATING THAT THE EXCESS SALARY DEFERRAL WAS TAXABLE IN THE YEAR IT WAS DEFERRED.
EXAMPLE:
Mr. Jones exceeded his $19,000 Salary Deferral Limit (402(g) limit) by $1,000 so his Excess Salary Deferral is $1,000 for Year 2019.  His account lost money in 2019 and it was determined that the pro rata share of loss was $100. Mr. Jones received a refund check in the amount of $900 in February of 2020, but he must report and pay tax on the full $1,000 Excess Deferral by entering $1,000 on Line 7 of his Year 2019 1040.  He will be entitled to take the $100 loss as an offset to his income in 2020 (the year the Excess was actually distributed) by entering the amount as a negative on the OTHER INCOME line of his Year 2020 1040 Form.
If your Excess Salary Deferral is not distributed from the plan until after April 15, 2020, then you have to pay tax on the Excess Salary Deferral for both the Year of deferral—2019 and the Year of distribution—2020.
AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed 415 Annual Additions Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Excess Employee Deferral Annual Additions – Type 09 

A.	Excess Roth Contributions					$_________
B.	Excess Non-Roth Contributions				$_________
C.	Gain/(Loss)							$_________
D.	Total Refund
•	Remove from rollover (if applicable)			$_________

Excess Voluntary After-Tax Annual Additions – Type 10 

A.	Excess Voluntary After-Tax Contributions			$_________
B.	Gain/(Loss)				$_________
C.	Total Refund
•	Remove from rollover (if applicable)			$_________

Excess Employer Contribution Annual Additions – Type 11

A.	Excess Employer Contributions				$_________
B.	Gain/(Loss)							$_________
C.	Amount Forfeited 
•	Remove from rollover (if applicable) 
•	Return to Company						$_________
What are Excess Annual Additions?

The Internal Revenue Code limits the annual combined amount of contributions (annual additions) to a participant’s account. For 2019, the amount is limited to the lesser of 100% of compensation or $56,000 (an additional $6,000 may be available for catch-up eligible employees). If the plan year is not 12 months long, the $56,000 compensation limit is adjusted to reflect the reduced number of months. For example, if the plan year is 5 months long, the $56,000 is replaced with $23,333 which is 5/12 of the $56,000. 

How are Excess Annual Additions corrected?

If the Excess Annual Additions are due to salary deferrals, they are refunded. The distribution is adjusted for any gain/loss through the date of distribution. 

If the Excess Annual Additions are due to employer contributions, they are forfeited along with any gain/loss through the date of distribution. 

Are Excess Annual Additions taxable?

Excess Annual Additions that were contributed as Roth Contributions (or Voluntary After-Tax Contributions) are not taxable distributions. However, any gain/loss that is distributed is taxable in the year distributed. 

Excess Annual Additions that were contributed as non-Roth Contributions and any gain/loss on the pre-tax non-Roth Contributions are taxable distributions for the year distributed.
 
Since Excess Annual Additions due to employer contributions are forfeited, they are not taxable to you. 

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Annual Additions reported to me and to the government?

A Form 1099-R will be sent to you next January. If you already received a Form 1099-R for your original distribution, you will receive an amended Form 1099-R, by next January 31st, reflecting the taxation of the distribution. 

What happens if the company’s contribution (Match, Profit Sharing (Non Elective Contribution, etc.) is an Excess Annual Addition?

If the Excess Annual Addition is a company contribution, the amount along with any gain/loss through the date of distribution is forfeited, regardless of vesting. If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.
Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed Plan Deferral Limit Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

Plan Deferral Limit Excess – Type 08

A.	Excess Roth Contributions			$_________
B.	Excess Non-Roth Contributions		$_________
C.	Gain/Loss					$_________
D.	Total Refund
•	Remove from rollover (if applicable)	$_________

What is a Plan Deferral Limit Excess?

The plan provisions limit the amount that a participant may contribute. If this amount is exceeded, it is called a Plan Deferral Limit Excess and must be returned to you. The distribution is adjusted for gain/loss through the date of distribution.

Are Plan Deferral Limit Excesses taxable?

Plan Deferral Limit Excesses that were contributed as Roth Contributions are not taxable distributions.
 
Plan Deferral Limit Excesses that were contributed as non-Roth Contributions are taxable distributions for the year they are distributed. 

Gain/Loss is always taxable income for the year distributed. 

The distribution is not subject to the 10% penalty for premature distribution.

How are Plan Deferral Limit Excesses reported to me and to the government?

A Form 1099-R will be sent to you next January. If you already received a Form 1099-R for your original distribution, you will receive an amended Form 1099-R, by next January 31st, reflecting the taxation of the distribution.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed Plan Match Limit Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Plan Match Limit Excess – Type 05 

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)					$_________
C.	Amount Forfeited 
•	Remove from rollover (if applicable) 
•	Return to Company				$_________

What are Plan Match Limit Excesses?

The plan provisions limit the amount that a participant may receive as a Matching contribution. If this amount is exceeded, it is called a Plan Match Limit Excess and must be forfeited regardless of vesting. The forfeiture is adjusted for gain/loss through the date of distribution.

Are Plan Match Limit Excesses taxable?

Since Plan Match Limit Excesses are forfeited, they are not taxable to you. Since you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed ADP Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Excess Contribution – Type 02

A.	Excess Roth Contributions			$_________
B.	Excess Non-Roth Contributions		$_________
C.	Gain/(Loss)					$_________
D.	Total Refund
•	Remove from rollover (if applicable)	$_________

Associative Match Adjustment – Type 07 (Excess Match Due to Failed ADP Test)

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)					$_________
C.	Amount Forfeited 
•	Remove from rollover (if applicable) 
•	Return to Company				$_________

What are Excess Contributions?

The Actual Deferral Percentage or ADP test ensures there is an equitable balance between the salary deferrals made by the Highly Compensated Employees (HCEs) and those made by the Non-Highly Compensated Employees (NHCEs). For a failed ADP test the Excess Contributions are returned to the HCEs. 

Are Excess Contributions taxable?

Excess Contributions that were contributed as Roth Contributions are not taxable distributions 

Excess Contributions that were contributed as non-Roth Contributions are taxable distributions for the year they were distributed. 

Gain/loss on both Roth and non-Roth Contributions is taxable income for the year distributed.

The distribution is not subject to the 10% penalty for premature distribution.

How are Excess Contributions reported to me and to the government?

A Form 1099-R will be sent to you next January. If you already received a Form 1099-R for your original distribution, you will receive an amended Form 1099-R reflecting the taxation of the distribution. You will receive this by next January 31.

What happens if the company provided me a match on the Excess Contribution?

If there is an employer matching contribution associated with the Excess Contribution, the matching contribution is forfeited, regardless of vesting. Since you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to me at the company.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.

Letter 2 – For a participant who has been paid out and therefore cannot receive a check or have money forfeited 

Sample Letter for Failed ACP Test: Use Company Letterhead

Current Date

Dear _________________________:

In order to keep our company’s plan in compliance with the law, several annual tests must be done under the Internal Revenue Code. As a result of the year-end tests, corrective action is required that impacts you.  Some of your contributions have been determined to be excess amounts according to the test results.  However, you received a distribution from the plan before this could occur.

Since you already received a distribution from the plan, some money must be withdrawn from any rollover account you may have selected. Please note it is important to notify the investment manager that received your rollover or direct transfer that a portion must be withdrawn as it is not an eligible rollover and it is includable as taxable income. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to my attention at the company.

Excess Aggregate Matching Contribution – Type 03

A.	Excess Matching Contributions		$_________
B.	Gain/(Loss)		$_________
C.	Amount Forfeited 
•	Remove from rollover (if applicable) 
•	Return to Company				$_________
D.	Total Refund
•	Remove from rollover (if applicable)	$_________

Excess Aggregate Voluntary After-Tax Contribution – Type 04

A.	Excess Voluntary After-Tax Contributions	$_________
B.	Gain/(Loss)		$_________
C.	Total Refund
•	Remove from rollover (if applicable)	$_________

What are Excess Aggregate Contributions?

The Actual Contribution Percentage or ACP test ensures there is an equitable balance between the matching contribution (and Voluntary After-Tax Contribution if any) received by the Highly Compensated Employees (HCEs) and those received by the Non-Highly Compensated Employees (NHCEs). For a failed ACP test, the Excess Aggregate Contributions are returned to the HCEs. 

Are Excess Aggregate Contributions always refunded?

Excess Aggregate Contributions are refunded if you are vested in the plan. The unvested portion (if any) is forfeited. 

Are Excess Aggregate Contributions that are refunded taxable income?

For type 3, Excess Aggregate Contributions that were refunded are taxable income for the year distributed.

For type 4, Excess Aggregate Contributions that were refunded have had taxes already paid on the money and are not taxable. 

The gain/loss that is refunded is taxable income for the year distributed.

How are Excess Aggregate Contributions reported to me and to the government?

A Form 1099-R will be sent to you next January. If you already received a Form 1099-R for your original distribution, you will receive an amended Form 1099-R, by next January 31st, reflecting the taxation of the distribution. 

If you received as a portion of your distribution money that should have been forfeited, you should return that portion in a certified check made out to __ (trustee of the plan) ___ to me at the company.

AS WITH ALL TAX MATTERS, YOU SHOULD TALK TO YOUR PERSONAL TAX ADVISOR.