IRS Issues Guidance on Inadvertent Benefit Overpayments; Comments Due December 16

Published October 16, 2024

The Internal Revenue Service (IRS) issued Notice 2024-77 to clarify the treatment of inadvertent benefits overpayments and contributions to correct them.

An inadvertent benefit overpayment is an eligible inadvertent failure that occurs due to a payment made from a plan that exceeded the amount payable under the terms of the plan or a limitation provided in the Internal Revenue Code (IRC) or Treasury regulations and is:
  • Described in section 401(a) which includes a trust exempt from tax under IRC section 501(a);
  • An annuity plan described in IRC section 403(a);
  • A plan established for its employees by the United States, by a state or political subdivision, or any agency or instrumentality; or
  • An annuity contract described in IRC section 403(b).
Inadvertent benefit overpayments also include payments made before a distribution is permitted under the IRC or under the terms of the plan.

The notice includes questions and answers (Q&As) on inadvertent benefit payments in the context of:
  • Staying in compliance,
  • Recoupment,
  • Rollovers,
  • IRC section 436 failures, 
  • Plan amendments, and
  • Self-correction.

Regarding applicability:

  • The notice applies with respect to section 414(aa) on the date it is issued. For periods before the date of issuance of the notice, a taxpayer may rely on a good faith, reasonable interpretation of section 414(aa).
  • The notice applies with respect to section 402(c)(12) on the date it is issued. Section 402(c)(12) applies as of December 29, 2022, regardless of when an inadvertent benefit overpayment was made. For periods before the date of issuance of the notice, a taxpayer may rely on a good faith, reasonable interpretation of section 402(c)(12).
  • A plan sponsor that interpreted section 414(aa) or 402(c)(12) during periods before the date of issuance of the notice in a manner that accords with this notice will be treated as having applied a good faith, reasonable interpretation of section 414(aa) or 402(c)(12).

Comments are requested on the guidance in the notice and any other aspect of sections 414(aa) and 402(c)(12), including as those sections are affected by the provisions of section 301(c) and (d) of the SECURE 2.0 Act.

Comments are due December 16, 2024.