Sometimes a Plan makes a mistake (don’t we all), and pays someone out too much. This can be a serious error, although the IRS has just released Notice 2024-77, which revises the rules. Under previous guidance, the Employer had to seek repayment from the employee, and this was often messy and not pretty. (They call this “recoupment”). The new Notice allows the Employer to seek recoupment, but no longer mandates it.

Further, there had been questions lingering about whether these excess payments could be rolled over into an IRA. These overpayments can be rolled over, unless the Employer seeks recoupment of them.

Another fuzzy point had been whether the Employer needed to make the plan whole, by making a contribution into the plan to make up for the overpayment. These repayments are no longer required, although there are a couple of exceptions to this. Let us know if you’d like to discuss this.