Refunds of Excess Aggregate Contributions

[Gadgetfreak]

In studying for the ERPA exam, I came across a section which mentioned the tax ramifications to employees of a failed ACP test resulting in Excess Aggregate Contributions. Why would employees get taxed at all? The excess agg cont (which includes allocable gains) is being forfeited to the Plan's forfeiture account. What am I missing? Thx.

[Jim Chad]

I think if the match is vested, the match is distributed and taxed. I am at home and can't look this up right now. Can anyone confirm or correct me?

[Tom Poje]

why would the $ be forfeited for a failed ACP test?

if the match is related to deferrals that are returned to a failed ADP, then yes those matches are forfeited (otherwise the individual received match at a higher rate than the NHCEs). and if a plan fails both ADP and ACP its possible to run the ACP test first, fix that and then fix the ADP test

1.401(m)-2(b)(2)(v) clearly states that excess aggregate contributions are 'distributed to the extent they are vested.

even if the person is partially vested, its possible to distribute the entire amount see example 7 of 1.401(m)-2(b)(5)