REDUCING DEFERRAL PERCENTAGE TO PASS ADP

[Tom Poje]

no problem. most documents allow anyone to stop deferring anytime during the year. As far as changing or reducing the amount, check document. some changes are only allowed quarterly or whatever.

[Guest CHRISTIE BOSS]

CAN HCE'S REDUCE THEIR DEFERRAL PERCENTAGES OR TAKE THEM TO ZERO AT ANYTIME DURING THE YEAR FOR THE PURPOSE OF PASSING ADP TEST?

[Guest Kerry]

We ran into the same thing this year and convinced the HCEs that some of them needed to reduce contributions. We used projected compensation for illustration purposes and to be safe considered that the NHCE deferral would not change during the year.

[Guest Dook]

Many plans give the Plan Administrator the discretionary power to limit or adjust the deferrals contributions of the HCE participants if it is meant to ensure that the year end test results are favorable. Check your document in the sections that address the topics of employee deferrals and application of the ADP test.

Of course this would have to be done on a reasonable basis, but my interpretation has been that this language overrides any other provisions regarding frequency and timing of contribution changes.

[Guest PWBAer]

All participants must be given the opportunity to reduce their 401(k) deferrals to $0 at any time. Normally the Plan document will provide information as to when a participant may re-start deferrals. If the Plan document is silent on the subject, then the Plan administrator must issue a formal administrative policy regarding re-starting deferrals. Without such a policy, all eligible employees should be given the opportunity to re-start deferrals at any time. (This is not addressing changes in deferral percentages.)

Additionally, most Plan documents permit the Plan administrator to cause HCE's to reduce their deferrals, even to zero, in order to adequately meet the non-discrimination testing requirements. If the Plan is silent on the subject, then no right is given the Plan administrator on the issue (in other words, an administrative policy is not sufficient).