Deferral of excess contributions that woud otherwise be returned after a failed test

[Guest FAQ]

I've posted this issue on the nonqualified plan board as well, but since it concerns discrimination testing, I wanted to see if anyone here has any input.

Question: Can an employee elect to defer into a nonqualified plan amounts that would otherwise be returned to him as a result of a failed 401(k) ADP/ACP test? The participant would make an election in the current year to defer any amounts that would otherwise be returned to him in the following year due to a failed test.

The IRS has sanctioned arrangements whereby deferrals are initially contributed to the nonqualified plan, then moved to the qualified plan once it is determined how much can be contributed to the qualified plan under the nondiscrimination rules, but would the approach that I mentioned be acceptable as well?

Thanks for any thoughts on this!

[R. Butler]

Boy that would be nice, but I don't see that you can't do that. See 1.401(k)-1(f)