ADP and fiscal year

[Guest moosegirl]

A plan has a 6/30/03 fiscal year. Plan fails ADP test for year. Can excess contributions (plus earnings) remain in plan and be considered as deferrals for 6/30/04 plan year? HCEs would reduce deferrals for remaining 2003 pay periods to stay within 402(g) limit.

[R. Butler]

No.

[Guest moosegirl]

Even though it would have no effect on the HCE's taxable income for 2003? The taxable W-2 income would be higher due to a smaller 2003 deferral vs having lower W-2 income being offset by 1099-R income. I seems like it would save a lot of paperwork but maybe my thinking is too practical.

[R. Butler]

Even though it would have no effect on the HCE's taxable income for 2003?

You might get people to disgree with me, but I only see the following options to correct a failed ADP test:

1. Distribute the excess contributions

2. Recharacterize as after tax

3. QNEC

4. Shifiting

Also keep in mind that some of these options might not be available depending on what your document says. Always read your document; it should tell you how to correct.