ADP Refunds in Short Plan Year

[Gilmore]

Company A is acquired by Company B on 1/31/2015. Each has their own calendar year 401(k) plan.

The 401(k) plans are merged on 4/1/2015, creating a short plan year for Company A's plan.

An ADP test is run for Company A's plan using the deferrals and compensation from 1/1/2015 to 1/31/2015 (ie, prior to acquisition date).

Company A owners defer the maximum $24,000 into the Company A plan, and now need refunds.

Let's assume Owner A deferred $24,000 and now needs a $10,000 refund, which is distributed to him in 2015.

If Owner A goes to work for another company with a 401(k) in 2015, can Owner A defer the refunded amount of $10,000 into his new company's 401(k) plan in 2015?

That doesn't sound right, but would like to be certain that I am not missing anything.

Thank you.

[Lou S.]

hmmm, that's an interesting thought to intentionally violate 402(g) in the 2nd plan.

could you then go back and recharacterize the excess contribution in plan one as excess deferral in plan one? I think the answer is yes. I'm not sure I see a problem with that in the regs.

[Tom Poje]

Let's take it one step further. I have actually seen this written up this way.

Company A has no match

Company B has a 100% match.

so now the guy defers 24000 at company B.

He takes the whole amount as excess deferral from A, and gets a full match from B on top of that!

you'd be crazy not to do it that way.

of course what is not addressed is what the plan document says. neither plan has violated excess deferrals, so unless the plan has a provision for removing excess deferrals should it arise due to unrelated plans you have issues

my concern in the original question is that you have a one month plan year. so comp for testing is only 22,083.33 (1/12 of the comp limit) I'd be surprised in a situation like that the refund wasn't more.

[Lou S.]

I would think it is uncommon for a plan not to have language to address refunds where someone is in 2 unrelated 401(k) plans. I don't write plans so I haven't checked the LRMs but I'd be mildly surprised if that wasn't addressed somewhere in the LRMs.

[Gilmore]

Tom, if the limitation year is the plan year, would the comp limit need to be prorated for one month, or would three months be used as I was thinking the plan year ended with the assets merging on 4/1/2015?