Limiting 401(k) deferrals to use catch-up to pass ADP

[drakecohen]

2011 ADP test looks like it's going to fail so the plan is amended before year-end (let's say 12/21/11) to impose a limit for 2011 on the deferrals of two named HCEs (let's say $15,000) so as to pass the ADP test and not have to make corrective distributions to other HCE's who are either not 50 or had already put in their $22,000 for 2011.

1) Any problems with this?

2) If not, any time constraint on when the amendment needs to be adopted?

[Mike Preston]

Before the limit is imposed.

[drakecohen]

Thanks for the response.

Any problem with limiting deferrals by individual?

[rcline46]

Nobody (govt) cares about HCEs, so of course you can limit by name.

[BG5150]

Our document provider wasn't too keen on doing that. By discriminating against one (or more HCE's) you were in turn discriminating in favor of the others who had no such restriction.

[rcline46]

I bet the document allows for it! And the regs permit ad hoc setting of limits. I would not be concerned.

[MWeddell]

A profit-sharing plan (including a 401(k) plan) has to have a definite allocation formula. Unless each HCE is specified as a separate class of employees, you may not be complying with the plan document if the limits vary by HCE.