Timing of Forfeiture of related match on ADP corrective conts.

[buckaroo]

What is the timing of the forfeiture of related match contributions on an ADP test failure corrective contribution? Is it the same 12 months as the ADP refund? If so, what happens if the related match contributions are not forfeited with 12 months after the end of the plan year? Can anyone provide a cite?

Thanks in advance.

[fiona1]

Do you have access to the ERISA Outline book? Chapter 11, Section VIII, Part A says:

Some of HCE's match might be forfeited. When an HCE has excess contributions, the HCE might forfeit a portion of his or her matching contributions, in order to maintain a nondiscriminatory rate of match, as required under Treas. Reg. §1.401(a)(4)-4. For details, see the discussion in Part E.3. of Section XII of this chapter.

If you go to Chapter 11, Section XII, Part E.3., it says:

Whether the rate of match is nonuniform is determined after correction of the ADP test and the ACP. See Treas. Reg. §1.401(a)(4)-4(e)(3)(iii)(G). When an orphan match is left in the HCE's account, a discrimination problem arises because the HCE has in effect received a higher rate of match when the matching contributions are compared to the contributions left in the plan that are eligible for a matching contribution.

It goes on to say:

To correct a nondiscriminatory rate of match, as illustrated in the example in 3.a.1) above, the plan may forfeit the matching contributions attributed to the returned deferrals, even if those matching contributions are vested. See IRC §411(a)(3)(G).

There is nothing in this section that references a "deadline" in forfeiting this match. I don't think the 12 month deadline applies. The 12 month deadline is for correcting the nondiscrimination test. The forfeited match is a benefits, rights and features issue. This is corrected in 401(a)(4)-4.

I think you have to think of it this way: What if the ADP/ACP passes but you find out that an employer overmatched an employee. Say that the match formula was 50% of deferrals up to 6% of pay. But say that the employer matched 7% of pay. How would you correct this? You would forfeit the excess match. That excess match would not be included on the ACP test. This is a benefits, rights and features issue. What do you consider a deadline for correcting this? I think you would apply the same logic to an excess match related to an ADP refund.

This is my 2 cents.

[buckaroo]

fiona,

Thanks for the reply and the detail. I was kind of torn on whether it would be subject to the 12 months. I like what you have written and think it sounds very logical. (Although that is not always the best indicator for our industry )

Thanks again.