Return HCE deferrals to avoid top-heavy?

[John A]

An accountant for a plan sponsor is suggesting that the sponsor can return deferrals to HCEs to avoid top-heavy status. Is this allowable?

What are the consequences if the plan sponsor returns HCE deferrals to avoid being top-heavy (and the deferrals would not have been returned due to ADP testing or any other reason)?

[david rigby]

Return? Is someone advocating that amounts be removed from the plan trust? On what authority? Most plans do not permit this. The DOL takes a rather dim view of it also.

[stephen]

Have you considered other options, for example making a QNEC.

(If the plan allows for this option)

I agree with pax- this is not a valid reason for taking money out of the trust.

I imagine the DOL view regarding this type of distribution (to avoid Top Heavy status) would be quite grim.

[R. Butler]

I agree with PAX. There is no basis for returning the deferrals. And even if you could return them; distributing to the HCE wouldn't work because it is still factored in the test.

[Medusa]

There is some discussion of this issue in Correcting Plan Defects Q & A column (Question 116). You might want to take a look at it.

[david rigby]

Q&A 116 as mentioned above.

http://www.benefitslink.com/cgi-bin/qa.cgi...d=116&mode=read