Employer limits HCE contributoins

[BG5150]

I have a client who limits its HCE's to $8,500 before catch-up. It is not in the document, but an administrative practice.

That said, the plan has two HCE's who went over the limit, and are not eligible for catch-up.

Can I pull the overages from the ADP test? And how (can?) we correct the participants? I wouldn't think it's an operational defect since the limit is not written into the plan.

Your thoughts are appreciated. If I cannot cut these people back, then the ADP test will fail.

[WDIK]

You indicate that the dollar limit for HCE's ($8,500) is not in the plan document. Is there language in the plan that has allowed an administrative limit to be set in order to pass ADP?

[david rigby]

If I cannot cut these people back, then the ADP test will fail.

If they are cut back to the administrative limit, will the ADP test pass? If not, you are going to do refunds anyway (probably).

[fiona1]

WDIK is on the right track. You want to see if the plan allows for a limit to be set. Our plans have this language, but it specifically states that the limit is only applied to the highly compensated employees.

Administrative limits are considered plan limits - and are applied in the same manner as a specific limit set forth in the plan. I don't know if you have access to Sal's ERISA Outline Book, but this is all covered in Chapter 11, Section XI, Part B, 3.b.2.

If the plan administrator is allowed by the plan to set limits - then anything deferred over that limit will be a catch-up (if eligible) or an operational failure. If the plan has no wording to set such limits, then you can't recharacterize anything over $8,500 to catch-up because the limit cannot be enforced.

[Guest Sieve]

The reg. reference to the plan (including administrative) limit for elective deferrals, thus permitting excesses to be considered catch-ups, is 1.414(v)-1(b)(ii). Without a plan provision which permits administrative establishment of a deferral limit, then not only can't you consider the excess deferrals as a catch-up (as fiona1 indicates), but you I don't see how you can return them to the participants, either.