Returning Employer Contributoin

[Chey1999]

I have a Prevailing Wage plan. The PW funds come into the plan as QNEC. The plan fails the 401 (a) (4) testing and a HCE needs to be corrected. Can the funds be return to the employer?

[Lou S.]

Unless there is a mistake of fact there are very few circumstances where funds can be returned to the employer. This doesn't sound like one of those times where the money can be returned.

Is their a plan provision that calls for the funds to be forfeited somehow if testing fails? I'm not personally aware of such provision being allowable.

If the plan fails testing, don't you generally have to raise NHCEs in order to pass rather than cut back HCEs?

Unless I misunderstand the question and it is a failed ADP test and not failed 401(a)(4) test. In which case you probably have excess aggregate contributions to refund to the HCE which would simply be taxable along with any gains/losses to the HCE.

Lastly, how do you satisfy prevailing wage rules if the employee's funds are returned to the employer? I don't do very much with PW plans but my understanding is the contributions are usually required for prevailing wage law jobs in lieu of additional cash compensation, generally to save on payroll taxes and such.

[Mike Preston]

You have to have some very strange circumstances for a PW plan to fail a4. Convince me.