Match in excess of formula and ACP Test

[commishvp]

HCE earns $300,000 and the discretionary match is $1 for $1 up to 4%. The person who processes the payroll does not realize there is a cap on compensation and deposits $12,000 of match into the HCE's account. The match should have been capped at $8,800. Do you run the ACP test on the $12,000 and than calculate the forfeiture and refund if applicable. Or do you forfeit the $3,200 and than run the ACP test. I looked in Sal's book and my interpretation is that you would treat it like a 402(g) violation and test on the full match. But I could not find a specific example for this situation. Any advice is always appreciated.

Thanks,

[Tom Poje]

under EPCRS Appendix B section 2.06 you would simply forfeit the extra (and gains)

.07 says you could amend the formula to increase all other employees by similar type % - I guess that means 300,000/ 220,000

the examples are only with money purchase and profit sharing, not match. however, there is no suggestion that you would run a nondiscrim test with the full amount of contribution and divide by the capped comp.

based on that, I would guess you would not run the ACP test with the 'extra' match, but thats my opinion.

[rcline46]

Man, this sure fits the definition of 'mistake of fact'. It is obviously a calculation error. See what your plan document says about this.

[fiona1]

We have clients who always match more than they're supposed to. Whether it's due to the compensation limit (like in this example), or due to the fact that they just don't follow the matching formula in the plan.

In either situation, however, we treat the "surplus" match as a corrective distribution and we do NOT include the amount in the ACP test.

I have looked through the regs and Sal's book like mad to find some verification that the surplus match would not be included in the ACP, but to no avail.

However, I don't interpret Sal's book as saying you treat this just like a 402(g) violation and include in the ACP test for a HCE. Chapter 11, Section VI, Part C 1.a.6 and 1.b says that if there are deferrals that exceed a plan imposed limit or deferrals that exceed the 415 limit, then those deferrals are excluded from the ADP test. I would treat a surplus match in the same category and exclude them from the ACP.

For deferrals over the plan imposed limit, Sal says "A reasonable interpretation of the law suggests that unauthorized deferrals (i.e., those which exceed the plan-imposed limit and are not catch-up contributions)

generally should not be included in ADP testing, although the IRS has not provided formal guidance on this issue."

For the original poster, I guess I would like to know why you interpret this the way you do.

[commishvp]

It was my own logic that I thought it might be treated like a 402(g) violation, nothing concrete from Sal's book. The amount forfeited and refunded in the plan I am working on is only a few dollars off between the 2 options. Fiona1, I do agree with your logic. . .

Thank you everybody for your responses.

[Guest Pensions in Paradise]

In either situation, however, we treat the "surplus" match as a corrective distribution and we do NOT include the amount in the ACP test.

Didn't you mean to say forfeiture instead of corrective distribution?

[fiona1]

In either situation, however, we treat the "surplus" match as a corrective distribution and we do NOT include the amount in the ACP test.

Didn't you mean to say forfeiture instead of corrective distribution?

Yep - I meant forfeiture. Thanks for the clarification.