402g exceeded in 2 unrelated plans. What happens to related match

[legort69]

Participant leaves company mid year and joins new company. Contributes 18k in first plan and 10k in new plan. They are not catch-up eligible. They receive match in both plans. First plan balance rolled out to IRA.

When they contact the TPA to request the excess 402g refund, do they get to keep the match attributed to their excess deferral in the new plan or does the match have to leave their account (forfeited)?

[Lou S.]

Related match should be forfeited.

[Bill Presson]

I believe they get to pick which plan they reduce, so they should pick the one that won't impact the match, if possible.

ETA: Obviously, this advice is much more useful when distributions haven't already taken place.

[legort69]

There is also another consideration. If the person does not make the distribution by April 15, then the funds have to stay in the plan assuming they are not over 59 1/2. However, they will have to report the taxes in the excess year and at the time they withdraw the money at some future date. If they don't mind paying double taxes then I guess they could keep the match.

Also, what if the person did not have a match in the former plan, and then rolled his funds to his new 401k plan, would the 402g refund could come from his rollover money and he gets to keep the match?

[Lou S.]

I believe they get to pick which plan they reduce, so they should pick the one that won't impact the match, if possible.

That might be difficult to do with the one that has already been rolled to an IRA.

[Bill Presson]

I believe they get to pick which plan they reduce, so they should pick the one that won't impact the match, if possible.

That might be difficult to do with the one that has already been rolled to an IRA.

True. I missed that part.

[spiritrider]

Even if it was not rolled over, there is no requirement that a plan has to remove excess deferrals. Some plans generally will only remove excess deferrals when the excess actually occurred under their plan.

I believe the thinking is that it wasn't an excess deferral when the participant separated and why should the plan have the administrative burden of correcting an error of the participants own making. Their view is that it is the responsibility of the later plan to remove the excess deferral, because it occurred on their watch.

Question? Would a plan of a previous employer ever process an excess deferral request prior to the end of a year based on a participants projection of excess deferrals based on their deferral rate at the new employer?

I've never seen a plan require proof of the excess deferral and amount, just routinely process based on the requested amount and plan provisions. However, this typically happens after the W-2s have been received.