Failed ACP test

[Cynchbeast]

I have small 401(k) plan with 1 HCE deferring and 2 NHCEs. The plan initially failed both ADP & ACP, but passed ADP when excess deferrals recharacterized as Catch-up (over 50). The calculated reduction for Match is $470.21.

Question: Per plan formula, the sponsor still owes HCE $100 additional ER match. Can they skip that and reduce the match already paid by $370.21 (move to cash account), or must they still contribution the $100 to fulfill the match required by formula, then reduce by $470.21?

[BG5150]

Does the plan not allow for catchups to match?

[Tom Poje]

check plan document. I have seen some that actually contain language that allow the match to be limited if it would cause ACP failure. (or at least I think I recall reading that in a document)

[Cynchbeast]

Thank you for your responses. I have reviewed the documents and can find no mention anywhere of either allowing match to be treated as catch-up, or limiting match to prevent failed ACP test.

So - would I be correct in assuming then that the sponsor must pay the additional match, then take back the entire excess amount? Because it certainly would be preferable to tell them to skip the additional $100 and only take back $370.21.

[rcline46]

Sponsor does not take back the match. Unvested portion is forfeited, employee gets distribution. Employer may own sponsor, but $ goes to employee, not employer.

[BG5150]

You don't classify match as catch-up.

There should be somewhere in the document that says whether or not the match will apply to deferrals classified as catch-up.

If the match does not apply to catch-up contributions, you forfeit the amount that was attributable to the catch-ups. If it does apply, then you do refunds of the funds per ACP testing rules.

[MoShawn]

1) If the document doesn't provide the limit that Tom suggested, then you would need to fund the $100 or you would be violating the plan's matching formula.

2) The comment from BG5150 is not in regard to treating match as catch-up, but rather in whether or not catch-up contributions are matched under the plan. Your wording of "calculated reduction for Match" seems to point to this. Did you mean the amount to be refunded to correct the failed test?

3) If the $470.21 is due to a failed ACP Test, the company does not get to "take back" that money. It is distributed to the particiant.

[Tom Poje]

I looked it up (just to make sure I wasn't imagining things. the document could read something like:

Excess Elective Deferrals and Excess Contributions Not Required to Be Matched.

Notwithstanding the

above, to the extent Non-Safe Harbor Matching Contributions (including Qualified Matching Contributions)

are contributed on an annual basis, no Non-Safe Harbor Matching Contribution (including Qualified

Matching Contributions) will be required with respect to that portion of an Elective Deferral which for that

Plan Year is determined to be either an Excess Elective Deferral (unless the Excess Elective Deferral is for a

Non-Highly Compensated Employee) or an Excess Contribution.

............

of course in my opinion, this only makes sense if the match would be forfeited because it was related to the deferral. (And as a previous post pointed out, if you match catch ups then its not forfeited)

In addition, you can always run the ACP test first, so if the test fails you can have a distribution.and if the HCE receives the distribution, then it's only to his benefit to receive the addition $100 or so anyway