Failed ADP and Match Calculation

[Dazednconfused]

Plan has failed ADP test, the excess deferrals are distributed within 2 1/2 months. When calculating the Disc Match is the ADP excess included for the allocation of the Match (that is calc the match off the participants total deferral amount) ? The ACP does fail, but if it doesn't include the ADP excess it reduces the ER match total.

My thought is yes, include all deferrals for the plan year but I was wondering if there is some special rule regarding distribution of the excess within the 2 1/2 month that I don't know about and calculating the Match for the year (it is funded annually). Looking through regs now for somethign regarding this.

Thanks all

[Tom Poje]

some earlier posts have indicated that some documents may contain language that says the match doesn't have to be made. I haven't seen such an animal, but I am not saying the don't exist. so check the document just in case.

Personally I'm uncomfortable with the strategy of not making the full match.

If you allocate the full match and the plan fails ACP then you have taken $ from the particular individual which doesn't seem correct.

If plan didn't fail ACP but you have related match, then you would have had forfeitures that had to be realloacted to people, so that doesn't seem fair either.

If some of the HCE people are catch up eligbile and others aren't, it would also seem a bit odd to calculate a match on the full fdeferral but not on others.

by the way, you said 'excess deferrals' were distributed within 2 1/2 months.

I assume you mean excess contributions. Excess deferrals are above the deferral limit (or I guess a plan imposed limit), not failed ADP test.

[Dazednconfused]

Thanks Tom,

Follow up question to the ACP refund, if the ER funds annually and has yet to fund the match (I want to dist'b acp failure before 2 1/2 month) so correction before the actual funding of the match.

Can the ER reduce the match by the acp refund amount? Lets say the match due for participant is $200, $50 needs to be dist'b for acp failure but they have not funded yet. Can the ER only fund $150? I say no that the full amount due needs to be funded. Even though in this case I am trying to correct before the actual match is funded, the ER is not happy with me...

Thanks again.

[Tom Poje]

again, check the document. the accudraft document has the following language

(f) Excess Elective Deferrals and Excess Contributions Not Required to Be Matched. Notwithstanding the above, to the extent Non-Safe Harbor Matching Contributions (including Qualified Matching Contributions) are contributed on an annual basis, no Non-Safe Harbor Matching Contribution (including Qualified Matching Contributions) will be required with respect to that portion of an Elective Deferral which for that Plan Year is determined to be either an Excess Elective Deferral (unless the Excess Elective Deferral is for a Non-Highly Compensated Employee) or an Excess Contribution. Furthermore, Matching Contributions (including Qualified Matching Contributions) that have been allocated to a Participant's Account must be forfeited if the contributions to which they relate are Excess Deferrals (unless the Excess Elective Deferrals are for Non-Highly Compensated Employees), Excess Contributions, or Excess Aggregate Contributions.

................

If your document doesn't have such language I'd lean toward saying you have to make the match since your document implies a match will be made and provides for no exceptions, but then, what do I know.

All this could get into some interesting issues.

e.g. excess contributions and aggregate contributions are included in the avg ben pct test. they are treated as in-service distributions, so you have to track for 5 years for top heavy. they are annual additions so could effect the person's 415 limit.

I'd lean toward saying that a document that contains such language that the ADP test is always performed first - otherwise how would you know if you had excess contributions that aren't matched?

[Dazednconfused]

I haven't found any type of language in document. I agree on the other issues that this may create, gotta love this business. One last thing, if I refund the acp excess before the actual deposit (annual deposit for er match), it would make sense that I don't need to calculate g/l and could return only the failure...but then again what do I know. Is there any regs out there regarding ?

Thanks again Tom.

[Tom Poje]

well, 1.401(m)-2(b)(2)(iv)(B) says a plan may use any reasonable method for computing income allocable to excess aggregate contributions

so if the match wasn't made yet, it would seem reasonable that there was no income

(unlike deferrals which are made throughout the year and the IRS tends to view that as the first in should be attributed gains)

but thats my opinion only in regrads to the match.