Excess Aggregate Contribution

[Guest sviola]

The ACP test fails and distribution of the excess aggregate contribution is going to be made to the HCEs. Does the distribution still need to be paid within 2 1/2 months (to avoid the penalty) if the match won't be deposited until the extended tax return due date?

[Tom Poje]

that is my understanding of the rules.

arguably, since gains associated with the match can be done under any reasonable method there would be no gains since the match hasn't been deposited.

your question implies that the ADP has passed, and therefore 'unused' deferrals from the NHCEs can be 'shifted' to the ACP test. (on paper only)

this would reduce (or eliminate) the amount of match returned.

[Lou S.]

Tom he was silent on the ADP. It is funny you assumed that meant it passed, I assumed that meant it failed.

Intersting theoretical side questions on the refund of excess aggregate contributions under this fact pattern.

1. What if the match is descretionary and they later decide, opps we can't afford it no match for this year. What happens if you already made refunds in anticipaton of the ACP failure based on the assumed match?

2. What if this is daily valued and tracked by partictpant and source in individual accounts. Assume that one or more HCEs who have this recievable match, that this represents 100% of their matching account? Can you cut the check from their deferral account? Or do you need to wait until they have an actual matching account exists with the deposit before due date of tax reurn but after 2.5 month window for refunds w/o 10% penalty?

[Guest sviola]

That's correct, the ADP test also failed. The match is discretionary; as with many things in this industry, this just doesn't make any sense.

[rcline46]

Check you document under the ACP test very carefully. I have seen them written where the match contribution testing section seems to say that the contribution must pass testing. Depending on how you read that section, then just maybe you might reach the conclusion that the amounts WHEN DEPOSITED must pass the test, and therefore there would not be a giveback for forfeiture. With no giveback then no excise tax.

Moral of the story - don't read the language as if you already know the answer. Read it for clues on how solve problems, for maximum flexibility/wiggle room.

[Tom Poje]

more importantly, check the document, as I recall, some won't match deferrals that are returned.

it was not mentioned if these were related matches which would have to be forfeited rather than distributed, though there is an option to run the ACP test first.