How does one calculate orphaned matching contributions (following retu

[Guest pjb]

How does one calculate orphaned matching contributions (following return of ADP excess contributions) if the plan contributes matching contributions more frequently than annually and no true-up?

For example, calendar year plan, match contributed quarterly, match formula 25% up to 8% of pay. HCE contributes up to 402(g) limit in final quarter (say 24% of pay during quarter or $50k). For ADP testing, his ADP is 6%, but needs to be cut back to 5% ($2,000). If he instead contributed the 6% of pay throughout the year, the forfeited match is 25% of $2000. However, since the $2,000 was contributed in the final quarter, it was not matched since greater than 8% of pay.

It seems obvious in this example, he shouldn't be required to forfeit any match since the returned deferrals were not actually matched. But, this would require an accumulation of deferrals not matched during each allocation period (even if the allocation period is per payroll period) to determine if returned deferrals exceeded this accumulation. Is this correct?

[E as in ERISA]

To clarify: His compensation for the year was $200,000, his final deferrals were $10,000, and match was only $1,000 or 0.5% for the year -- much less than 25% on the dollar?

My gut reaction is you're probably fine. I don't recall seeing the question answered unofficially. (If it has, hopefully someone else will answer.)

[Mike Preston]

I haven't either. But the net result seems non-discriminatory to me.

Of course, we might ask what the document says about how to calculate refunds of matching contributions.

[Guest lindamichals]

have read the post regarding orphaned match posted on 2/28/03 and would like some additional clarification.

Am I correct in the assumption that if the plan matches monthly, fails adp and refunds are elected, the match attributable to the excess contribution must also be returned ONLY IF:

there is a cap on the match and if the HCE who is getting the refunds DID NOT reach the cap?

Example:

ADP of the HCE who gets the refund is 5.52%. The matching cap is 6%.

Thanks.

[Mike Preston]

The match attributable to the excess contributions must be refunded. However, it is possible that the match attributable to the excess contributions is indeed zero. In the case where the ADP was 5.52% before correction and the plan matches up to 6%, I don't know how it is possible to have no match attributable to excess contributions.

[Guest pjb]

Well, I think that's the question.

Say the HCE earned $199,275k, 5.52% is $11,000 deferred.

Supposed HCE's Dec pay is only $22,000, and say he deferred the full $11,000 in Dec. His deferral percentage is 50%. If 6% cap, 44% ($9,680) was not matched for Dec. Deferrals could be reduced to $1,320 before any match needs to be returned.

[Mike Preston]

Take a look at example 6 of 1.401(m)-1(e)(6). Then see what the provisions of the plan are, to the extent they mention the issue. If the plan is silent, the regulation at 1.401(m)-1(e)(4) seems to provide that if you can identify the "unmatched" amounts, you can correct by first refunding those unmatched amounts. Only once you end up refunding matched amounts do you need to make a corresponding correction of matching funds.

[Guest pjb]

Makes sense to me. Thanks Mike.

[Guest lindamichals]

I have another question, is the returned match also subject to adjustment of gain or loss? Thanks.

[Mike Preston]

It is not a "returned" match, it is a "correction of matching funds." The "correction" in this case is to have the matching amounts forfeited, not refunded. This is a huge difference from an ACP correction where the matching amounts are indeed refunded (to the extent vested, they are refunded to the participant).

I don't have time to look it up, but I'm fairly confident that the amounts that need to be corrected are treated like any other excess aggregate contribution. To the extent the document calls for inclusion of interest the calculation should be the same, I would think.

[Guest pjb]

I agree.