Excess contributions

[Guest mparker2028]

I have a client who is in the middle of converting self directed brokerage accounts in a 401k Plan to platform situation.

They are making a Profit Sharing contribution this year, and wanted to know if, because everyone's money is all over the place, could they just reduce the amount of funding from Profit Sharing by the amount of the refund due to each of 9 docs.

My first response to her was that such a thing is not allowed. Can someone direct me a regulation or other IRS publication to substantiate my response?

Thank you for all responses.

[mbozek]

What is the refund that will be received by each doc and where is coming from? In an individual account plan each participant has a vested right to the funds in their account.

[Guest mparker2028]

Sorry for the confusion.

The Plan failed the ADP Test for the year and 9 docs (the HCE's) must receive excess distribution - approx $300 each.

The trustees dont want to distribute - they would rather reduce the amount of Profit Sharing contribution to each of these docs by the $300 excess contribution, which seems like something the IRS would frown upon.

[QDROphile]

The regulations specify the exclusive methods for dealing with ADP excess.

[austin3515]

Check it out -

Open a checking account in the name of the Plan. Deposit the PS contribution to the checking account, then cut the checks to the participants for the ADP excess. Then cut checks from the checking account to each individual brokerage account for their PS contribution.

That way 100% of the contribution is deposited. IT shouldn't matter what bucket the money is in - ie., the plan only defines the trust, not the bucket within the trust. This works for me, but I'm curious to see others thoughts.