Failed ADP making corrective distribution of Deferral, how do I handle

[Guest Don J. Smith]

Plan has one HCE and Failed the ADP. Plan matches 25 cents on dollar, per pay period, up to 12%. We are going to distribute deferrals and related gains.

Q 1) Do we have to distribute related match?

Q 2) How do we handle the related match and gains that were made with those deferrals? If the answer is forfeitures, does the HCE share in those forfeitures and when must they be allocated?

[MWeddell]

The plan should provide that match attributable to refunded elective deferrals doesn't stay in the HCE's account. If it did stay, then you'd have a discriminatory benefit, right, or feature under 1.401(a)(4)-4 because the matching rate is higher for this HCE than other employees once one considers only the elective deferrals left in the plan. Check the plan document.

The excess match typically becomes a forfeiture. Look at your plan document whether it offsets future company contributions or is allocated to employees. If allocated to employees, typically the HCE shares in it, but it's a matter of what's in the plan document.