ADP testing

[Guest Amy Marie]

When performing an ADP test for a plan with 9.30.08 year end, can participants exceed $15,500 in deferrals? Ex. a participant who is not over 50 made deferrals of $16,000 for the plan year but does not exceed the 402(g) limit for the 2007 or 2008 calendar years.

[Guest Sieve]

The short answer is Yes.

The 402(g) limit (i.e., the individual annual salary deferral limit) is a calendar year limit, not a plan year limit. Therefore, unless a plan prohibits it (which I have never seen), an off-calendar year ADP clearly can be calculated without regard to any single calendar year's 402(g) limit (as long, of course, as the calendar year deferral limits have not, themselves, been violated). So, an HCE could have, e.g., $30,000 deferred in one off-calendar plan year--and, if the individual annual deferral limits have not been exceeded, the full $30,000 is used to test ADP.

[Tom Poje]

Amy:

if this helps, the IRS has to have a way of checking things. so they simply add up all the W-2s in a given calendar year to see if the limit has been exceeded.

This is why the corrections for excess deferrals are due April 15. You file your taxes, the govt adds up the W-2, etc.