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Too damn complicated, I'm just waiting until 2015!

so it really boils down to whether they mind getting a refund (most likely) every year. probably some of the after tax will remain in the plan and could then be moved. they have already paid taxes on the $ so there are no tax consequences. if the plan was safe harbor they lose the top heavy free, but maybe that doesn't matter. the example I've used is let's suppose the plan has a basic match, and everyone defers 5% or more, so there is 4% for match (which could be used in testing) so the max additional match for the HCE is 2%. someone making 260,000 could put away 5200 in after tax - and that is with ideal conditions of all NHCEs deferring (or at least that is the way I understand how it would work - not the "You can sock away an extra $20,000 in after tax and convert to a Roth"

To answer your question on that: The argument here is that they are not deferrals made under the written terms of the plan. Therefore, they should not be tested within the ADP test and should not be treated as deferrals for plan purposes. So, if you were to forfeit them and make the participant whole outside the plan, then this would effectively put the plan in the condition had the deferrals not happened. I'm not saying I would agree with this, but understand how their position could be reasonable. Hope it works out for you :-) That's actually a thought provoking approach. Not saying I agree..... Sadly this was not the theory. My observation with this vendor is they've lost a lot of talent in the Legal/Compliance departments and Mistake of Fact is the go to solution for any situation involving deferrals.

I agree that you can amend a plan to discontinue participation (but stand by my statement - with emphasis added - "you can't retroactively change eligibility to remove someone that way.") I get a little - ok, totally - bogged down in the technicality of saying you retroactively amend as stated, and that that means that the person was in from 1/1 to 12/16 and then out upon signing of the amendment. I think you have, in fact, retroactively excluded him back to 1/1 or 7/1 or whatever date he entered. I think the signing date is a red herring; if the amendment says it is retroactive, then it is retroactive. I think, at least, you'd have to clarify the amendment to say "but if someone entered prior to the signing date of this amendment and would not have entered under the terms of the plan as amended, they are excluded as of the signing date." Or something like that. Maybe counting angels on the head of a pin.

If the vendor asserts the usual stance that it is not the plan's administrator, not a fiduciary, and does not render accounting, tax, or legal advice, is there any reason the plan's administrator does not politely decline to follow the vendor's suggestion and instead use the advice of someone who is professionally responsible for his or her legal advice?