ADP Test Correction

[imchipbrown]

Am I doing this right? Seems strange.

Non Highly Comp'd ADP is 2.96%. Highly Comp'd limited to 4.96%.

Four Highly Comp'd.

         Defer                  Salary       ADRHC1 12000.00   98935.45   12.13%HC2   9000.00	200000.00     4.50%HC3   9000.00	172315.98     5.22%HC$   9000.00	195827.82     4.60%  ADP              6.61%

Reduction of $6,520 of HC1 deferral makes his ADR 5.54% and the ADP 4.96%.

Take $3,000 off HC1. This makes all HCs deferrals $9,000. Next, take the remaining $3,520 and split it between all HCs ($880). So all HCs are limited to $8,120. HC1 gets distribution of $3,880, all others $880.

Employer match goes in with each deferral, 50% of deferral. What do I do about the match? ACP problem is not as bad as the ADP.

[Tom Poje]

looks like you are doing it correctly.

you have a couple of choices.

if deferrals are refunded, you also have to make sure rate of match doesn't fail BRF. this could require forfeiture of some match.

on the other hand, there is probably no reason you couldn't correct ACP test first.

see 1.401(m)-1(e)(4) excess aggregate contrib that are distributed are not taken into account for purposes of 401(a)(4) (e.g. BRF) thus refund failed match first, then do deferrals. might eliminate BRF issue.

this is generally a better deal for the HCEs as no $ are forfeited.

depending on how your numbers are coming out (and provided document allows it) it might be possible to shift some of the deferrals to the ACP test and reduce amount of refund.

You also didn't indicate if anyone is eligible for catch-up. any deferral refund could be counted as catch-up (again provided document permits this)

As a side note, interestingly enough, if you moved forward a few years, HCE1 would be able to treat his distribution as a ROTH IRA (leave it in the plan) if the document allowed it!!!!!!

[imchipbrown]

Thanks, Tom

Using the same method to fix the ACP test, only HCE1 needs to get a refund. What smells a little funny is that the other 3 HCEs match ($4,500) is 55% of net deferrals. HC1 gets 57.2%.

Chip

[Tom Poje]

as long as their rate of match is less than the NHCEs that is fine.

I suppose another possibility (again depending on the document) is to test using comp - deferrals.

One hce is at 200,000, so assuming he made over 209,000 his percentage won't change.

If there are a number of NHCEs who didn't defer their percentage will stay at 0, so won't change. conceivably you could have enough NHCEs deferring to change the refund.