Plans with Before-tax and Roth 401(k) - Designation of excess

[Guest philc]

If a participant designates part of their elective deferrals as before-tax and part Roth 401(k) and there is an excess ADP, do you think the Plan can designate which source the excess comes from? Or do you think it has to be a participant election?

1.401(k)-2 of the proposed regs state a plan "may" permit an HCE to elect ... Do you take that to mean the plan can do it? And would the same be true as far as a 402(g) excess?

Any thoughts on what you may be doing? Allow participants to choose when they originally designate before-tax/Roth 401(k)? Or simply make it a fiduciary/plan decision?

[MWeddell]

Yes, by using the word "may" I think that the proposed regulations permit the plan document to specify the rule instead of requiring plans to obtain HCE elections.

I plan to recommend:

- Don't collect elections. There often is little time available for communicating refund amounts and collecting elections because often an employer is trying to process the refunds within 2½ months after the plan year ends.

- Refund traditional pre-tax deferrals before Roth contributions. HCE typically wants to maximize the economic value kept in the plan. $x of Roth contributions, already taxed is greater economic value than $x of pre-tax contributions.