Testing rules for amounts distributed under APRSC

[M R Bernardin]

A participant takes a hardship distribution under the safe harbor rules, but the employer does not immediately suspend future deferrals as required. Subsequently, the employer also makes a matching contribution based on the ineligible deferral (which is a relatively small dollar amount). When performing the ADP and ACP tests for the year, are these ineligible contributions disregarded if they are corrected via APRSC? Any cites would be helpful.

[Guest AL Minton]

The ERISA Outline Book, 4th edition by Sal Tripodi has a nifty Problem Resolution Table in the last chapter.

The Book identifies your problem as "Issue #10" The "Corrective Action" states what to do with the money (refund deferrals; forfeit match), but doesn't discuss the effect on the ADP test.

This is an "Operational" failure that does not have specific correction methods in the regs, so you must rely on a "method should resemble a regulatory method."

I believe the regulatory method require testing EXCLUDING the deferral & match.

Refer to Rev.Proc. 98-22 (general principles.)