ADP testing and Otherwise Excludable EEs

[Guest DVW]

Hi. Quick point of clarification -

1. Assuming a 401k plan passes 410(b) minimum coverage requirements using all eligible employees for testing, as well as testing separately using Otherwise Excludable option,

2. And, the plan fails the ADP test using both methods (testing using all eligible employees, or testing under the IRC 401(k)(3)(F) Otherwise Excludable option),

3. and, assumimg the all eligible EE testing method produced significantly greater excess contributions for HCEs than the Otherwise Excludable method,

Can you use the smaller excess contributions calculated using the Otherwise Excludable method as the basis for calculating the HCE's refundable amount. In other words, if HCE #1 has a refundable Excess Contribution of $5,000 under method 1, and an Excess Contribution of $500 under method 2, we can use $500 as the basis for calculating his Excess Deferral refund - ie: $500 plus earnings.

Is this correct?

Thanks.

[Tom Poje]

you are correct. go to the head of the class.

[Guest DVW]

you are correct. go to the head of the class.

Why, thank you teach!! Seemed perfectly clear to me, but the person who disagreed with me was..umm, ..errr..unclear.