Maximum 402(g) limit and ADP

[cathyw]

An employee in Company A also received some compensation late in 2006 from Company B. The companies are unrelated, but participate in the same 401(k) plan. The employee had made the maximum 402(g) contribution relating to Company A compensation before receiving the compensation from Company B, so did not defer based on B compensation. The employee is an HCE wrt Company A, but is a NHCE wrt Company B.

Company B's ADP test fails due to the employee's zero deferral. Can the employee be treated as not eligible to make deferrals wrt Company B, and therefore be excluded from the ADP test? Seems only fair and logical to do that, but we know IRS rules don't operate on that basis.

Thanks

[JanetM]

If plan is multiple employer and entities are not related - could you disaggregate him for having less than a year of service in B?

[david rigby]

Isn't the 402(g) limit an individual one?

What does the plan say?

[cathyw]

If plan is multiple employer and entities are not related - could you disaggregate him for having less than a year of service in B?

Per IRC Section 413, the plan must apply the minimum service requirements of 410(a) as if the employers are a single employer. I believe that precludes the ability to disaggregate as an "otherwise excludable".

[cathyw]

Isn't the 402(g) limit an individual one?

What does the plan say?

Yes, the 402(g) limit is individual. That's why the employee did not defer anything from Company B compensation.

[Tom Poje]

while not specifically mentioning 402(g)

the definitions of 'eligible employee' under 401(k)-6 says that you are still treated as an eligible employee "but for a suspension due to a distribution[e.g. this would be a hardship], a loan, or an election not to participate in the plan [this would be other than a one-time election]...also the last sentence adds "because the employee may receive no additional additions because of section 415©(l)

as was noted, 402(g) is an individual limit not a plan limit. in other words an individual could defer 15,000 to one plan and 10,000 to another plan. neither plan has accepted deferrals greater than the 402(g) limit so neither plan is in violation, even though the individual is. so the individual was not 'ineligible to defer'

now what happens when it occurs between 2 unrelated companies but the same plan is beyond me.

[cathyw]

as was noted, 402(g) is an individual limit not a plan limit. in other words an individual could defer 15,000 to one plan and 10,000 to another plan. neither plan has accepted deferrals greater than the 402(g) limit so neither plan is in violation, even though the individual is. so the individual was not 'ineligible to defer'

now what happens when it occurs between 2 unrelated companies but the same plan is beyond me.

One of the reasons the result seemed inequitable to me was that since this is one plan, I don't believe the plan could have accepted any deferral from the Company B compensation. It's a different result if the employee was newly hired and made a deferral after maxing out under a separate plan. I believe that deferral would count for the ADP test, even though it would be refunded after the end of the year.

[TLGeer]

The disaggregation rules assume a single employer, as rewuired under