Excess deferrals and non-discrimination testing.

[Guest Sara H]

If an employee deferred more than $10,000 for their taxable year, do you include the excess amount when you are computing non-discrimination testing? For example: An employee deferred $11,500 in 1998 (plan year is calendar year). When the ADP test is computed, or when you calculate the 415 limit for each employee, do you include the extra $1,500? Thanks!

[Guest gself]

Elective deferrals that exceed Sect. 415 limits and are distributed as excess annual additions are not included in (k) or (m) testing, or the 402(g) limit [reg. sect. 1.415-6(B)(6)(iv)]. If elective deferrals exceed the 402(g) limit, even if the excess deferrals are timely refunded, excess deferrals for HCEs still count in the (k) test, and excess deferrals for all employees count as annual additions in 415 testing. [reg. sec. 1.402(g)-1(e)(1)(ii)] In other words, monitor the 415 limits first, then the 402(g) limit, and finally the (k) & (m) tests.