415 limit met, ok to reduce ps contrib to hce?

[Guest jc1457]

I have a 401(k) plan where the employer contributes 25% of comp as a discretionary profit sharing contribution. One of the HCEs contributed the maximum $15,500 (roth) for 2007. He now cannot receive his full profit sharing contribution because he would exceed his 415 limits.

Since he is a HCE - is it ok to give him a smaller profit sharing contribution than the rest of the participants? To comply with 415. The HCE would prefer this to refunding his deferral.

Thank you!

[david rigby]

Do plan provisions already describe what to do next?

[Guest jc1457]

Do plan provisions already describe what to do next?

Thank you - I don't know why I didn't think to check. THe Plan states that elective deferrals are first returned - so there's my answer.

If the participant would prefer to have his roth contribution fully funded, is there any way around this?

Thank you!

[Tom Poje]

This raises an interesting question how to handle what you describe- such a provision is no longer available under the new 415 regs - of course these rules apply for limitation years beginning after 7/1/07 - however this is a reminder - those provision were removed from the 415 regs! and now return of deferrals is only available under EPCRS - at least as I remember things.

[QDROphile]

You can still reduce the deferrals under the new regulations, but an excess is tough to catch in time. It is easier to reduce the nonelective employer contributions that are typically made after the end of the year because those amounts can be tested on a pro forma basis before determining and contributing the amounts. The plan must have terms to provide for the reductions.

[Guest jc1457]

Thank you for your help.

Am I wrong in saying that you can discriminate against HCEs? So that if one HCE receives a smaller profit sharing contribution - it's ok? I know I heard this before, but don't fully understand it.

The a group of engineers 2 owners & 4 employees - all of which are highly compensated. The person who is nearing his 415 limits is 64. He would prefer that he contribute the max to his Roth. If he does this, then he cannot receive the same profit sharing contribution as the rest of the participants. Is there any way he can do this?

Thank you!

[QDROphile]

You can reduce the profit sharing contribution amount if you do it right, including correct timing. The plan needs appropriate terms.

[Guest jc1457]

You can reduce the profit sharing contribution amount if you do it right, including correct timing. The plan needs appropriate terms.

I'm sorry to be such a pest and I really appreciate your help. Can you explain what you mean about the correct timing and the appropriate plan terms? The plan allocates a discretionary profit sharing contribution based on comp - there is no comparability or permitted disparity, just comp to comp.

Thank you so much!

[QDROphile]

For details about how to comply with section 415 by reducing nonelective employer contributions you will need to consult with a competent professional and the particulars of your situation. The most straightforward approach is to start with a proposed profit sharing contribution and test for section 415 compliance, taking into account all expected annual additions and the plan's allocation provisions, including the proposed profit sharing contribution. To the the extent the proposed contribution would cause an excess, the proposed allocation to the participant would be reduced and the proposed contribution would also be reduced by an amount that would cause all actual annual additions to comply with the limits. It appears that you would not have to take into account discrimination rules in making the reductions because all employees are HCEs. Plan terms have to support the method of calculating and reducing amounts.