Matching Contribution Calculation when plan failed ADP Test

[Dan]

I have a first year 401(k) plan that failed it's ADP test. I am preparing to return excess deferral. Employer wants to send 1998 matching contribution.

Is 1998 matching contribution based on actual deferral and subject to excess matching contribution, or is match based on deferral after return of excess? Thanks for any assistance.

[Alan Simpson]

For the initial plan year of a 401(k) a 3% ADP for the NHCE can be assumed (IRS Notice 98-1) unless the employer wishes to use the current year data. After the initial year the employer may revoke the election of using the "prior year" ADP and begin using the current year data.

If using the 3% ADP for NHCE does not help, you need to look at your plan document which should state on what the matching contribution is based.

[Dan]

Thank you for the reply.

[This message has been edited by Dan (edited 03-04-99).]