HCEs Deferral Elections

[Guest Jodie Dailey]

An HCE in a 401(k) plan did not particpate throughout the plan year because of prior years failure of ADP test. He would now like to contribute as much as he can before the end of the plan year based on data now available; however, the plan allows for changes in allocations only twice a year, Jan and July. Is he out of luck because he didn't make the change by July 1, or does he have any options available to allow him to defer before year end?

[MWeddell]

I think this is really a case of check the plan document. It doesn't sound like there's likely to be a solution here, but the problem is generated by the plan document's semi-annual contribution election restriction, not external law created by Congress or the IRS, so you've got to look closely at the plan document.

The only external legal restriction that strikes me as relavent is that the plan can't provide a discriminatory benefit, right, or feature. Hence, if the HCE had an opportunity to resume making contributions at this point in time, the same opportunity also should be available to NHCEs.

[Guest Dook]

Look in the plan document to see if there is language which gives the Plan Administrator the right to limit HCE contributions to help pass the ADP/ACP tests. If that language is there I think that the HCE should be able to fund what they can before year end.

The HCE did not fund during the year because they did not want to, but because of a fear of test failure. If toward year end it is determined by the Administrator that there is room for the HCE to make contributions and still pas the ADP/ACP test, that is justification enough to allow them to "change" their contribution percentage at a time other than prescribed otherwise in the plan.