ADP Corrective Refunds?

[Guest KBANQ]

Is it permissible to make an election in the prior year to have any ADP/ACP refunds deferred to a Non-Qualified Plan? (I.E in 2006 elect to defer any refund that may be required for the Plan year 2007 to the Deferred Compensation Plan as a method to correct the ADP failure). I have not found anything for or against.

Thanks

[Belgarath]

I'll toss out my opinion here. Since you have specific statutory/regulatory requirements as to the allowable methods of correcting failures, and since your proposed method is not one of those allowable corrections, then you can't do it, or at least the plan can't explicitly provide for it. I suppose you might be able to somehow get the "net effect" by distributing and then increasing deferred comp by that amount, depending upon timing, but that's purely speculative on my part - I really don't know.

[Jim Chad]

I have heard of getting this result by going in the other direction. I have heard of a Plan where all money for HCE's went into a deferred comp plan. Then, at the end of the year, money would be moved to the 401(k). They would move only enough money to still pass the testing.

[Guest KBANQ]

Thanks for your response. I have found some information about this subject. The following are two of items I have found; 1) Since the code states that any refund from the 401(k) Plan must be taxed on the way out, thus making impossible to "roll" the money to the Nnoqualified plan. 2) The other has to do with contingent benefits - the contribution to the DCP is contingent on contributions, or not, to the 401(k) Plan.

As to going the other way, that is permissible under a Wrap Around Plan.

I think this answers my questions on this topic.

Thanks again