Correcting deferrals on non-deferrable comp.

[Guest Bud]

I have a question about correcting deferrals on non-deferrable compensation (according to the plan document). Take for example Participant A who elected to defer 5% of comp. The plan received 5% of deferrable comp and 5% of non-deferrable comp. Participant A could have elected to defer at a higher percentage and probably intended to defer up to the full 402(g) limit or at least 5% of deferrable and non-deferrable comp (because he hasn't complained yet about excess deferral amounts).

Do you think we should return deferrals on the non-deferrable comp? Do you think plan qualification is safe with keeping those deferrals in the plan under the assumption that Participant A would have elected a higher percentage had he understood that a large portion of his total comp was not deferrable?

The plan document is clear about deferrable comp, but participant communication (SPD, forms, memos, etc.) is vague. The IRS may have a qualification issue with keeping the money in the plan, but the DOL may have an issue with returning the money because participants may not have made an informed decision.

Thanks