Non Discrimination, Excess Deferrals and Catch ups.

[Lori H]

For 2008 an HCE defers the $15,500 and the $5000 catch up, for a total of $20,500. The plan fails the ADP test and it is determined through the leveling process that $3000 is to be refunded to above HCE as he deferred the most. He will actually HAVE to take that refund, correct????????

However, if he had deferred the $15,500 and then only did $2000 in catch up for a total of $17,500 and it was determined the plan failed the ADP and a refund of $3000 was necessary, that $3000 could be classified as catch up and therefore no refund necessary. Am I thinking right?

[mming]

I believe you are. According to the test, the most he could have deferred normally is $12,500 and he would still be afforded an additional $5,000 catch up.

[Kevin C]

For a calendar year plan, you are correct. The ADP refund is only reclassified as catch-up to the extent he has not already used up his catch-up limit for the year. Since he deferred $20,500, he used up his entire 2008 catch-up limit before the ADP test is run.

It wouldn't hurt to double check that only $15,500 of his deferrals are included in the ADP test.