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401(h) Feature in Money Purchase Plan


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I am a plan sponsor and administer a 401(a) plan with a 401(h) feature. (The 401(a) is a money purchase plan, though it allows employee after-tax as well as employer contributions.)

My question... Are allocations to the 401(h) account limited to a portion of current year contributions taking the incidental benefit limit into account? (This is how the plan is currently administered.) Or, with the appropriate amendment, can an employee transfer accumulated contributions from the inception date of the feature from 401(a) accounts to 401(h) accounts all at one time (still taking the incidental benefit limit into account)?

In other words, this feature has been in effect since 2004. If an employee had a total of $100,000 in contributions from 2004 to the present and had never participated in the 401(h) feature, could he transfer $25,000 to his 401(h) account in 2015 regardless of his 2015 contributions?

In researching what little information I can find on 401(h) accounts, I see references to transfers in DB plans, but nothing specifically referring to a DC.

Any words of wisdom (and cites to go along with them) would be most welcome!

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I believe this is an aggregate test. So the 25% limitation is based upon the aggregate contributions, and aggregate amounts allocated to the 401(h) account. If your plan allows life insurance, you need to take this into account as well. Take a look at the last paragraph of 415(h), which discusses the aggregate nature of the test.

Caveat - I've never actually SEEN a plan with a 401(h) account...

As for words of wisdom, free advice is worth what you pay for it!

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I've been doing plan administration and compliance since the 1980's--and this is the first one I've seen as well. I agree that the 25% limit is definitely based on aggregate amounts--and we don't have life insurance in our plan. I'm concerned about the ability to transfer based on aggregate contributions rather than current contributions.

Somehow--and I know this isn't necessarily sufficient reason to think that it can't be done--but it seems too easy to be able to transfer all funds at the same time rather than year by year?

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On the assumption that your document language either allows it or is neutral on the issue, I wouldn't see any problem with that. Life insurance premiums, for example, can be done in a lump sum in a given year, again, because the incidental test is aggregate.

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