Over Plan Limits

[Guest Frank Jackson]

A 401(k) plan states that the elective deferral limit is 15% . We have a few participants that went over the 15%. The plan offers no guidance. What is the best method for correction? APRSC?, follow the 402(g) regulations? Please provide any articles or legislation that may help. Thanks!

[Dawn Hafner]

There is a good discussion of this same issue under the topic "Employee deferrals in excess of plan limiation" under this message board.

There is currently no prescribed fix for this situation by the IRS. The IRS is supposed to be working on some sample correction procedures for employers to correct under APRSC. Pension Publications of Denver wrote the IRS with a list of suggested corrections for certain errors. The correction they suggested the IRS consider for an employee that defers an amount in excess of the plan's deferral limitation was included in the letter as follows:

" The plan may distribute the excess amount to the employee, with earnings. Alternatively, if the employee is an NHCE, the plan may retain the excess amount in the NHCE's account".

Obviously, there is not one safe method to use, but PPD's suggested method may be as good as any.