"Returning" a 401(k) Contribution

[Guest SPollock]

We are taking over a plan that has a 401(k) plan and a New Comparability Profit Sharing Plan with 4 HCEs and 45 NHCEs. The plan is designed to allow for a contribution of $30,000 to each HCE, none of the HCEs make a 401(k) contribution, and normally this is not a problem to pass testing. This year for some reason, one of the HCEs made contributions of nearly $10,000 to the 401(k) plan. THE PROBLEM: The plan will not pass testing if we make a $30,000 P/S contribution to 3 of the 4 HCEs and a $20,000 contribution to the one HCE who made the 401(k) contribution. MY QUESTION: Is there some way we can "return" the 401(k) contribution made during this year to the HCE who made the mistaken deferrals? Can we hold it in a suspense account or treat it as an employer contribution? I hope someone can respond to this soon because I am meeting the client tomorrow. THANK YOU!!

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[Wessex]

How do the 415 provisions of the two plans coordinate? Depending on the language of the plans, you may be able to contribute the $30,000 under the profit-sharing plan and return the deferrals as a 415 correction (although you may not fall into one of the reasons for which a 415 corrective distribution can be made). You would also need to check the contribution language in the profit-sharing plan.

(Without really thinking it through, I don't immediately see how giving an HCE a lower contribution would cause a test failure.)