Excess Deferrals and 401(a)(4)

[Guest Vreez]

Client has a 401(k) plan with a cross-tested profit sharing contribution feature. In 2003, the owner makes excess deferrals (total deferrals of $18,000 - don't ask how), but these excess deferrals are returned prior to 4/15/04. The owner then contributes a profit sharing contribution for 2003 to max himself out under 415. When running the 401(a)(4) non-discrimination testing, are the excess deferrals that were returned considered in the test? As this seems to result in a maximum annual addition of $34,000 ($40,000 - $6,000), it doesn't seem fair.

[Guest Hartnett123]

My understanding of the "excess rules" are as follows:

If you failed because your HCE exceeded 415 limits, then you do not include the excess in your testing.

If you failed because your HCE exceeded the 402(g) limit (but was within the 415 limits), then refunded monies are counted as employer contributions for purposes of the deduction limits under 404, Top Heavy determination, and nondiscrimination testing.