electronic 401(k) enrollment

[lexi]

if an ER has a new program whereby HCEs in a 401(k) plan make their 401(k) election online w/o a paper copy going to HR, and the ER finds out that the HCE has inadvertently set level too high, could the

ER itself or the TPA go into that HCE's account, w/o the HCE's consent, and automatically reduce the elective deferral so the plan doesn't run afoul of ADP testing?

If not, what other remedies are available to the ER??

thanks in advance for your help.

[WDIK]

the HCE has inadvertently set level too high

Is the limitation you refer to based on the statutory limit, a provision in the plan, or related to passing the ADP test?

[JanetM]

I would not override the participants election unless it violates a plan provisions, for example one that limits HCE to max %. Your only option is to make refund after you fail the test.

[lexi]

WDIK:

the limit would be based on failing ADP testing.

i am nervous about automatically overriding the EE's election since, by def'n, it is an EE election.

but on the other hand, what could we do prospectively to avoid the problem, instead of learning at the end of the year that there has been an excess derferral and corrections will have to be made?

[JanetM]

Amend the plan to limit the % or $ that HCE can contribute or adopt safe harbor (with no after tax contributions). One other thing is to do preliminary test to see if you will pass, curtail HCEs at this point if you have to.

[pmacduff]

how about info to the HCEs at the start of the plan year (since you know who that are at that point) and let them know that if they maximize, there may be refunds due at the end of the PY? or are there enough HCEs that this wouldn't be feasible?

[WDIK]

Also, there is nothing stopping you from notifying participants that a portion of their deferrals will be returned and suggesting that they might want to make an appropriate change to their elections.

(pmacduff: I didn't mean to duplicate the sentiments of your post. You just beat me to the punch.)

[Guest Pensions in Paradise]

Use prior year testing for ADP/ACP. Then you can tell the HCE's what their max deferral percentage is for each year based on the prior year results.

[RCK]

lexi,

If you have a plan document that gives the administrator or the adminsitrative committee the right to limit HCE deferrals, and you have a practice in place that limits HCEs to x%, you HAVE TO cut the HCE in question to whatever that limit is. We limit HCE's to a lower level throughout the year, then cut them back to an even lower level over the last few months based on projected tests. So we don't have to do a refund.

If you have electronic elections, you program should not be accepting an impermissible percentage from an HCE. That's one of the advantages of an electronic process--it can validate all the data as it comes in.