ADP Test Failure -- This is a tricky one

[Guest HRGuyinSF]

We just closed our PYE 2005 in mid-Dec 2006. (strike one) While we understood that we failed the ADP test, we did not know the amounts of the refunds due to the ADP test. (strike two) At the last minute [a week before the new year] we finally get our information from our administrators and accidently forget to send the distribution request to remove the funds before 12/31/06. As it stands now, our erisa attorney has not sent our 5500 off, or even if this can help our excess contributions for the following plan year.

Any opinions or options? I am hopefully to see some light at the end of this 401k tunnel.

[Tom Poje]

since you are past 1 year, it tosses you into EPCRS (self correction)

there are 2 ways to handle, probably the least expensive is the one to one correction. distribution the money and make a contribution equal to that amount.

There are 4 possible way to allocate amongst the NHCEs as well.

(I have this info readily available only because i am working on a powerpoint presentation of 401k corrections and I happen to have that part done, about the only thing I have done at this point in time)

Appendix B 2.01(1)(a) – QNEC

Appendix B 2.01(1)(b) – one to one correction

Determine excess contribution plus earnings through date of correction

If excess aggregate or related match, could be forfeited

If previously distributed, must inform HCE it wasn’t eligible for rollover

If previously distributed and was forfeitable, then make correction for overpayment

Make contribution equal to amount distributed and/or forfeited

Eligible NHCEs in year of failure

Eligible NHCEs in year of failure and are also NHCEs in year of correction

Eligible NHCEs in year of failure and are still employees on date of correction

Eligible NHCEs in year of failure and are also NHCEs in year of correction and are still employees on date of correction

If using prior year testing, year of failure = prior year NHCEs

Amount allocated comp to comp