HCE exclued from plan - one contributed 401k

[jmartin]

Have a plan that excludes HCE's from the plan due to coverage. The plan also excludes hourly nhces. There are 21 HCE's and about 30k total nhces. About 1,500 nhces are salary and eligible. All 21 HCE's could not contribute due to coverage only covering 1500 out of 30k nhces.

One HCE had 401k contributions deducted from Oct '11 - Dec'11. The first nine months he had nothing, so we are unsure why 401k deductions starting showing on the payroll. Due to him being excluded, what is the correction? Is it as simple as just refunding the entire 401k plus earnings just like we would an ADP test failure? He is a HCE for 2012 as well and is not contributing 401k.

On a side note, if the plan covered 1 out of 21 HCE's, the plan would technically pass coverage with 1,500 eligible nhce's. 1/21 =4.76% times .7 = 3.33%. 30,000 nhces times 3.33% = 1,000 nhces to be covered.

[Tom Poje]

if the plan excludes HCEs, and an HCE defers I'd think that falls under the category of failure to follow the terms of the document (inadvertantly or otherwise)

arguably the $ should be refunded to put the plan back into the position it 'should' have been had the error not occurred.

in particular, under EPCRS section 5 .01(3) excess amounts (i) an elective deferral that is in excess of the maximum contribution under the plan

usually this would be used for a plan that limits deferals to 10% of comp or something similar, in this case if HCEs are ineligible, then it sounds to me like any amount deferred by an hce is an excess.

or at least that is my guess.

the only other option (usually used with NHCEs) occurs because one was allowed to defer being eligbile and the correction is to amend the plan to allow that person (and only that person) to be eligible via amendment Appendix B Section 2 .07(3)