Deadline for recharacterizing excess deferrals

[MWeddell]

Plan is a calendar year plan that permits both employee pre-tax (elective contributions or elective deferrals) and employee after-tax contributions. The plan design includes an EACA, an eligible automatic contribution arrangement. Initial results indicate that the 2009 ADP test fails but the 2009 ACP test passes with room to spare. What is the deadline for recharacterizing employee pre-tax contributions as employee after-tax contributions? 2½ months or six months?

Treas. Reg. Section 1.401(k)-2(b)(3)(iii)(A) states that "excess contributions may not be recharacterized ... after 2½ months after the close of the plan year..." That's a straightforward argument in favor of the 2½ month deadline.

Treas. Reg. Sections 1.401(k)-2(b)(2)(vi)(A) and 1.401(k)-2(b)(5)(iii) extends the 2½ month deadline for making corrective refunds not subject to the 10% excise tax to 6 months for EACAs. Those changes are effective beginning in 2010. Is there room for a good faith interpretation argument to indicate that the extension of the 2½ month to the 6 month deadline could apply for the 2½ month recharacterization deadline too for 2009? It seems like the policy of not having to worry about testing results for six months would apply to both versions of the 2½ month deadline.

[Tom Poje]

my problem with that argument is that both Treas. Reg. Sections 1.401(k)-2(b)(2)(vi)(A) and 1.401(k)-2(b)(5)(iii) were amend to say 6 months, but the one in the middle 1.401(k)-2(b)(3)(iii)(A) was not amended.

while this might be one of the only times the IRS has ever missed something (I think its been years since they have issued any 'corrections' ) it seems more than likely they intentionally did not amend 2(b)(3) to say 6 months.

[MWeddell]

Thanks, Tom.