After 28 years with the same company I retired in Sept 2011 at age 58. Due to a severance package and vacation accruals I asked to place the max I could in my 401K plan, I placed $16,280 in the plan when I retired in Sept. Last week I was notified that I had contributed too much and received a check for $5764. The odd thing is that the letter stated I had over contributed by $6653 however there was a penalty (loss) of $861. My issue is that after I placed money into the 401 K in Sept it went on to earn a return of 10.68% through Dec 31. Am I correct that I should have received the original $6653 that was in excess plus $707 of gains. Why the $889 loss? I spoke with the IRS and they stated that losses and gains were managed by the plan administrator.
Regards
Brian Whelan
I recently had a participant receive a distribution from an excess 401k contribution for 2011. The TPA (Third Party Administator) Recordkeeper used the loss from the portfolio for the year. Like you, the participant was looking at the stellar 4th quarter returns and was not happy with the loss being deducted.
As Donald stated, you may be able to state your case to the TPA, but they will not be very accommodating to your request and admit their mistake. This is the time where a good advisor to the plan can make a difference and fight for you as well.
Brian, you need to understand what formula the administrator used to determine the loss. Very likely they employed a formula that assumed your excess contribution occurred over the course of the year, rather than all at once. If you are able to provide convincing math that you were treated unfairly, then this should be made right. Having a friend in your former company's HR department might help. But don't underestimate the bureaucracy (and ignorance) that you might confront. I suspect you will have to work hard for your money.
Brian - You should speak with the Plan Record Keeper or Plan Administrator about this. The Record Keeper should be able to account for every inflow and outflow associated with your account, including the effect of gains or losses related to any excess contributions. If you can show that the accounting has been done incorrectly, the Record Keeper and Administrator will be obligated to correct the mistake.
