EMPLOYER MATCHING CONTRIBUTIONS

[Guest elizabeth]

I HAVE A PLAN WHERE THE EMPLOYER MATCH IS BASES ON 50% OF SALARY DEFERRALS. THE ADP TEST DID NOT PASS, THEREFORE REFUNDS NEED TO BE MADE. DOES THE EMPLOYER MATCH THE AMOUNT DEFERRED, OR THE AMOUNT DEFERRED, LESS ANY REFUNDS?

[Tom Poje]

Good question!

1. Per document, plan is to match 50% of deferrals, so by all means, match anything deferred.

2. Now run your test, you said it fails.

3. If plan fails ACP test, calculate corrective distributions on the match portion.

be careful if ee is not 100% vested. there are 2 possible method of refunds at this point!

I would always do this step first.

4. Calculate corrective distributions on the deferrals.

5. any match attributable to the deferral MUST be forfeited (not distributed) that is why you fix the match first.

This is because rate of match must be the same for all employees.

e.g. suppose ee deferred 2000$. he got 1000$ in match.

if you refund 1000$ in deferral, he has now received a 100% match.

by the way, such an employee is entitled to receive a portion of the forfeited match.

[if match was limited to, say, 5% of deferral, you might not have forfeitable match $]

Have you exhausted all other means? Statutory exclusions, using last year test results, etc?