Guest Jhagan Posted May 30, 1999 Report Share Posted May 30, 1999 What is the excess contribution amount to be refunded to Participant D to satisfy the ADP test for 12/31/97? ADP for HCE = 4.5 Max ADP which allows to pass test is 3.7 Part, Deferrals, Comp A, 4500, 150000 B, 7000, 140000 C, 3000, 100000 D, 6300, 90000 Answer is 1,240 Explanation?? Link to comment Share on other sites More sharing options...

Guest DSD Posted June 3, 1999 Report Share Posted June 3, 1999 The easiest way to solve this is to determine the ADRs first (contrib/comp) for each employee. A. .03 B. .05 C. .03 D. .07 Employee B and D need to be reduced. First reduce D to B's ADR of .05. The total ADR is .16 - divide by 4 and you still are not passing .16/4 = .04. B and D need to be reduced below .05 but not as far as A or C. Since you know it will pass with an ADP of 3.7, determine the total ADRs for the group by multiplying 3.7% by 4 = 14.8% or .148. This is the maximum that the four employees can add up to. If you subtract .148 from .16 (the total of the ADRs after reducing D to .05) the difference is .012. The total ADRs need to be reduced by this amount. Since B and D need to be reduced equally, divide .012 in half - .006. Reduce B .05 and D .05 by .006 which equals .044. Now add the new ADRs and make sure their ADP equals 3.7%. A. .03 B. .044 C. .03 D. .044 Total is .148/4 = .037 or 3.7% Calculate the total to be refunded: B - 7,000 - (.044 X 140,000) = 840 D - 6,300 - (.044 x 90,000) = 2340 Total 3180 Refund to HCE with the highest deferrals first: B - 7,000 reduced to next highest HCE which is D - reduce to 6,300 Total refunds - 3180 Less B's refund - 700 Remaining - 2480 Reduce B and D equally until next HCE deferral amount is reached or total refunds are depleted: B - 1240 D - 1240 Answer is 1240. Link to comment Share on other sites More sharing options...

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