[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)(2)-1]

[Page 90-91]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)(2)-1  Refund of mistaken employer contributions and 
withdrawal liability payments to multiemployer plans.

    (a) Introduction--(1) In general. Section 401(a)(2) provides that a 
contribution or payment of withdrawal liability made to a multiemployer 
plan due to a mistake of fact or mistake of law can be returned to the 
employer under certain conditions. This section specifies the conditions 
under which an employer's contribution or payment may be returned.
    (2) Effective dates. This section applies to refunds made after July 
22, 2002.
    (b) Conditions for return of contribution--(1) In general. In the 
case of a contribution or a withdrawal liability payment to a 
multiemployer plan which was made because of a mistake of fact or a 
mistake of law, the plan will not violate section 401(a)(2) merely 
because the contribution or payment is returned within six months after 
the date on which the plan administrator determines that the 
contribution or payment was the result of a mistake of fact or law. The 
contribution or payment is considered as returned within the required 
period if the employer establishes a right to a refund of the amount 
mistakenly contributed or paid by filing a claim with the plan 
administrator within six months after the date on which the plan 
administrator determines that a mistake did occur. For purposes of this 
section, plan administrator is defined in section 414(g) and the 
regulations thereunder.

[[Page 91]]

    (2) Applicable conditions--(i) In general. The employer making the 
contribution or withdrawal liability payment to a multiemployer plan 
must demonstrate that an excessive contribution or overpayment has been 
made due to a mistake of fact or law. A mistake of fact or law relating 
to plan qualification under section 401 or to trust exemption under 
section 501 is not considered to be a mistake of fact or law which 
entitles an employer to a refund under this section. For purposes of 
this section, a multiemployer plan is defined in section 414(f) and the 
regulations thereunder.
    (ii) Amount to be returned--(A) General rule. The amount to be 
returned to the employer is the excess of the amount contributed or paid 
over the amount that would have been contributed or paid had no mistake 
been made. This amount is the excess contribution or overpayment. Except 
as provided in paragraph (b)(2)(ii)(B) of this section, interest or 
earnings attributable to an excess contribution shall not be returned to 
the employer, and any losses attributable to an excess contribution must 
reduce the amount returned to the employer. For purposes of the previous 
sentence, the application of plan-wide investment experience to the 
excess contribution would be an acceptable method of calculating losses. 
A refund of a mistaken contribution must in no event reduce a 
participant's account balance in a defined contribution plan to an 
amount less than that amount which would properly have been in that 
participant's account had no mistake occurred. Thus, to the extent that 
the refund of an excess contribution would reduce a participant's 
account balance in a defined contribution plan to an amount less than 
the amount which would properly be in the participant's account had no 
mistake occurred, the return of the excess contribution would be 
prohibited by this section.
    (B) Overpayment of withdrawal liability. In the case of an 
overpayment of withdrawal liability established by the plan sponsor 
under section 4219(c)(2) of ERISA, the plan will not fail to satisfy 
section 401(a)(2) if, in accordance with Pension Benefit Guaranty 
Corporation regulations regarding the overpayments of withdrawal 
liability (29 CFR 4219.31(d)), the overpayment, with interest, is 
returned to the employer.
    (c) Amount refunded includible in employer's income. In general, the 
amount of the excess contribution or overpayment must be included in 
gross income by the employer if the excess contribution or overpayment 
resulted in a tax benefit in a prior year. Any interest credited or paid 
on the refund of mistaken withdrawal liability payments must also be 
included in gross income by the employer.
    (d) Application of section 412. An amount returned under paragraph 
(b)(2)(ii) of this section is charged to the funding standard account 
under section 412 in the year in which the amount is returned.

[T.D. 9005, 67 FR 47693, July 22, 2002]