NQDC Wrap Plan - 401k to NQ is it possible?

[Guest JArsl]

409A has made it clear that you can move money to the 401k from the NQDC plan after testing.

What about the reverse? Is it possible to defer/rollover the returned excess contributions from the 401k directly to the NQDC Plan? (staying pre-tax)

I've been researching and can only find that the sponsor must make a taxable distribution to the participant.

I would appreciate any regulation references that would help.

[k man]

409A has made it clear that you can move money to the 401k from the NQDC plan after testing.

What about the reverse? Is it possible to defer/rollover the returned excess contributions from the 401k directly to the NQDC Plan? (staying pre-tax)

I've been researching and can only find that the sponsor must make a taxable distribution to the participant.

I would appreciate any regulation references that would help.

dont have the cite offhand but i dont believe you can do it that way..once it is returned for the 401(k) it is considered income to the participant. the regs dont make the exception for refunds into a non qualified plan. i will look for a reference.

[Ron Snyder]

The problem is that employee contributions are generally refunded to the employee in a tax year after the year in which the 401k deferral was made because that's when the nondiscrimination testing is done. So the deferred compensation deferral would be for the next year, not for the original year. This assumes employee salary deferral contributions.

The result is different for employer contributions. Those can transfer directly from the 401k to the NQDC plan without a problem.

[Guest mjb]

V: How can the employer contributions be transferred from the 401k without a distribution event occurring?

[Locust]

Transfer from a 401(k) plan to a nonqualified plan would be a reversion to the employer that is absolutely prohibited.

[Ron Snyder]

A participant may elect to defer amounts into a nonqualified deferred compensation plan including 401(k) deferrals that are returned to a participant for failing to pass the nondiscrimination tests. For tax reporting purposes, the amounts are refunded to the participant from the 401(k) plan and then deferred into the NQDC plan, thus complicating form W-3 with multiple entries in boxes 11 and 13.

[Steelerfan]

A participant may elect to defer amounts into a nonqualified deferred compensation plan including 401(k) deferrals that are returned to a participant for failing to pass the nondiscrimination tests. For tax reporting purposes, the amounts are refunded to the participant from the 401(k) plan and then deferred into the NQDC plan, thus complicating form W-3 with multiple entries in boxes 11 and 13.

Nope I don't think so.

It is virtually impossible after 409A to make such a deferral because the salary is already earned--it is too late to make a timely deferral and would be an invalid subsequent deferral. You would literally have to make an election to defer the same salary into both a 401(k) and a NQDC plan at the same time, which isn't possible in a supplemental plan and is conceptually impossible in separate plans.

But even pre-409A, I believe there was a letter ruling that did not allow for further deferal since the amounts become taxable whan refunded. There are many who argued that this would be the perfect solution for HCE's, but it is a dream, not reality