ACP & MULTIPLE USE CORRECTION

[Guest PWBAer]

The Plan document should address this issue in detail.

[Guest Beavis]

I agree. Check the document. It may be possible to fix the multiple use failure by returning deferrals. This would only help the ACP side to the extent you had to forfiet attributable match, but it might be worth looking at anyway.

[This message has been edited by Beavis (edited 12-11-98).]

[Guest CHRISTIE BOSS]

WHEN ACP & MULTIPLE USE FAIL AND THE HCE'S ARE ZERO VESTED, THE CORRECTION IS TO FORFEIT THE EXCESS MATCHING CONTRIBUTIONS PLUS ALLOCABLE INCOME, RIGHT? I ASSUME THESE FORFEITURES ARE ONLY ALLOCATED TO NHC EMPLOYEES, CORRECT? HELP!!

[MWeddell]

The plan document should state (1) how the multiple use is corrected (by affecting the ADP test or the ACP test), (2) whether non- or partially vested matching contributions to HCEs that become excess aggregate contributions are refunded to the HCEs or treated as forfeitures, and (3) if they are forfeitures whether they are offset against future employer contributions or whether they are allocated to participants and the allocation formula.

Clarifying a couple more points relevant to your questions: If the excess aggregate contributions were vested, they cannot be treated as forfeitures, but the disposition of nonvested excess aggregate contributions depends on the plan document.

How the forfeiture is treated depends on how it's allocated. If it is allocated in proportion to plan year compensation (that meets 414(s) standards) for all eligible employees, then it's treated like a nonmatching contribution, seems to meet a 401(a)(4) safe harbor, and there's no reason why it couldn't be allocated to HCEs. If it's allocated only to employees who've made elective deferrals and/or employee contributions during the plan year, then your concern about not allocated them to HCEs is valid because they will be subject to 401(m) testing.

Hope that helps you.