ADP/ACP excess employer excise tax calculation

[RRB]

Hi,

I'm trying to determine if excess deferrals due to an ADP failure that are recharacterized to catch-up are subject to the 10% employer excise tax penalty. I do not believe so but I could not find any documentation supporting this view. Also, with respect to ACP failures, I have found that non vested match excesses amounts should be included as part of the calculation. However, I am not certain regarding ATM. It seems to me that since ATM is subtracted from the match prior to running the ACP test, it would not be included in the calculation. But again, I cannot find documentation to suppor this. Any assistance would be much appreciated.

Thanks,

RRB

[PensionPro]

Only excess contributions and excess aggregate contributions (whether distributable or forfeitable) are subject to the excise tax. See page 11 of instructions to form 5330. Deferrals recharacterized as catch-up are not excess contributions.

[RRB]

Only excess contributions and excess aggregate contributions (whether distributable or forfeitable) are subject to the excise tax. See page 11 of instructions to form 5330. Deferrals recharacterized as catch-up are not excess contributions.

Thanks,

I had read the instructions and that language, to me, does not directly answer my questions. I'm looking for a more direct reference. I will keep looking.

RRB

[Lou S.]

Hi,

I'm trying to determine if excess deferrals due to an ADP failure that are recharacterized to catch-up are subject to the 10% employer excise tax penalty. I do not believe so but I could not find any documentation supporting this view.

It is retained and never leaves the plan. It is not subject to the penalty in any way.

[Guest Sieve]

I think it goes this way . . .

See Treas. Reg. Section 1.414(v)-1(d)(iii), second sentence (i.e., deferrals recharacterized as catch-ups are not treated as failing to meet the requirement that the ADP is corrected if excesses are distributed). Therefore, the exemption from the excise tax for amounts distributed within 2-1/2 months (IRC Section 4979(f)(1)) is met through recharacterization as a catch-up even though the catch-up is not distributed pursuant to 401(k)(8)(A).

Is that what you're looking for?

[RRB]

I think it goes this way . . .

See Treas. Reg. Section 1.414(v)-1(d)(iii), second sentence (i.e., deferrals recharacterized as catch-ups are not treated as failing to meet the requirement that the ADP is corrected if excesses are distributed). Therefore, the exemption from the excise tax for amounts distributed within 2-1/2 months (IRC Section 4979(f)(1)) is met through recharacterization as a catch-up even though the catch-up is not distributed pursuant to 401(k)(8)(A).

Is that what you're looking for?

Thanks,

That did help.

RRB.

[Guest ppapdx]

Does anyone know what ATM stands for in the OP?

[ETA Consulting LLC]

Attributed Match. It is the matching contribution on the excess deferrals. Many plans are written to forfeit these prior to the ACP test.

Good Luck!

[Guest ppapdx]

Gotcha. That's what I thought. Associated, orphan, hanging, excess, attributed - I hear all kinds of different terms to describe it.