401k Discrimination test refunds

[legort69]

This is more of a grievance. I have plans in which the HCEs would be able to contribute more to a Traditional IRA than they can to the 401k plan. I think the rules need to change such that an HCE should at least be able to contribute the IRA maximum limit to their 401k without concern that a portion of it is going to be refunded. Thus, lets assume the IRA limit is 4k for 2005. I have an HCE who contributed 5k and the test results indicate a refund of 3k - all EE. I say, let the HCE keep at least 4k in the plan and refund only the 1k (5k - 4k). Does anyone see a problem with that?

[Guest Pensions in Paradise]

The reason HCE's should not be allowed to automatically contribute the IRA limit is that a 401(k) offers certain advantages over an IRA. These include creditor protection, ability to take loans, and possibly cheaper/broader investment options.

There are alternatives (safe harbor, QNEC) which would allow the HCE to contribute more to the 401(k).

[Beltane]

Sorry to state the obvious, but don't forget the catchup if that would help.