401(k) refund due to company acquisition

[R. Butler]

I know the answer, but I am hoping I'm missing something.

Jim contribuites $24,000 in January to ABC, Inc. 401(k) plan.

In March, XYZ, Inc. purchases ABC, Inc. in an asset acquisiiton. ABC, Inc. plan termninated immediately prior to the acquisition. Jim gets a $12,000 refund for the 2015 short plan year.

Jim wants to contibute to the XYZ, Inc. plan. I don't see that he can for 2015. Even though he received a refund from the ABC, Inc. plan for 2015, he still hit the 402(g) limit. I don't see that the refund changes that.

Am I missing anything?

Thanks in advance for any guidance.

[Lou S.]

They are unrelated companies.

Sure he'll have to take a refund to make sure he doesn't go over his 402(g) limit for the year, but wait he already got the refund, problem solved!

[R. Butler]

Thank you for your response. I agree with your answer.

The problem isn't really the refund; that has been made. The problem is that Jim is hoping that by receiving the refund of 2015 401(k) contributions during 2015 that the refunded amount would not be treated as 401(k) for purposes of the 402(g) limit.

I don't see that we can give Jim the answer he wants, but I was hoping that maybe I was missing something.

[Lou S.]

Yes he will exceed the 402(g) between both unrelated companies. He has already received a refund from the first company that will bring him down to the 402(g) limit. He will "request a 402(g) refund from the first company" which will just happen to be the amount of refund he already received from them for for failing the ADP test in the same amount as he has exceeded the 402(g) limit. The first company will see they already refunded him this amount and simply change the 1099-R code from excess contribution to excess deferral.

It's really just a form over substance issue.

I'm ignoring the g/l issue. I'm assuming he will defer the contribution portion of his refund (unadjusted for earnings) to his second plan.

[R. Butler]

Okay I see under §1.402(g)-1(e)(6) how this works.

A slight twist. In addiiton the excess contributions due to the failed ADP test there were deferrals refunded due to exess annual addiitons. The adjusted dollar limit was only about $12,000.

It is my understanding that the excess annual addiiton is disregarded for 402(g) purposes and Jim would be allowed to contribute that portion to the new employer's plan also.

Am I understanding correctly?

Thanks for any guidance.