Fail ADP with Plan Limit

[Guest carsonv]

I have a plan that states in the document that deferrals are limited to 6.5%. There are some HCE's that deferred over 6.5% and are not eligible for catch-up contributions, so the tests fails. It is my understanding that even though the deferrals of the HCE exceeded the plan limit, they are required to be tested b/c they are HCE's. Any thoughts....the plan would pass if these HCE's had deferred the limit and no more. Do I have to include this $$ in the test...please say no or let me know of a loop-hole that might get me around it!!!

This seem worng...I would not be happy if I had to take money back beacuse someone else deferred over what the plan allowed....

Thanks

Carson

[R. Butler]

The answer may depend on how the operational failure is going to be corrected. Is the plan going to be retroactively amended to remove the cap on deferrals? If so then they definitely need to be included.

Assuming that there is no plan amendment; I haven't seen any guidance. I am aware of the rule concerning deferrals in excess of the 402(g) limits, but thats a different issue. You may at least have an arguement that they shouldn't be included in the test.

[Guest Pensions in Paradise]

Sorry if this seems like a stupid question, but why does the plan limit deferrals for all employees to 6.5%? I can understand limiting the HCE's, but why limit the NHCE's?

[Guest carsonv]

Thanks for your help, after further looking I agree. It is an operation failure, the plan is not going to be retroactively amended, so we are returning the deferrals. Now the question become how to return them, taxes, and all that good stuff. It looks like I will get to read some more...

Carson

[Guest carsonv]

Sorry if this seems like a stupid question, but why does the plan limit deferrals for all employees to 6.5%? I can understand limiting the HCE's, but why limit the NHCE's?

The HCE's are the only ones limited....