Refund of 415 limit due to crediting rule and ABT

[tghooper]

We had to reduce an owner's contribution because of the 30-day crediting rule.  The owner is self employed and wants the maximum contribution but will be limited to $41,000 ,including catch up. A refund of $10,000 in elective deferrals was necessary and following EPCRS Rev Proc 2008-50. (per plan doc).  ERISA book says these refunds of elective deferral are disregarded for 402(g) / ADP Test.  The plan is a Safe Harbor 3%. 

The total contribution of $41K was used for the cross test due to the limit.  Question - should elective deferrals be $18,500 or $10,500 in the cross-test??  I'm inclined to the later but corrective distributions are generally included for ABT.  If the former is used, I'm basically "making up" for the that amount that has will be refunded...doesn't seem correct.  This will have an effect on minimum gateway since we're trying to get to the $41k.  

[Tom Poje]

The ERISA Outline Book has the following

Chapter 8 Section V

2.i.Certain distributed amounts must be included in benefit percentage. When calculating an employee's benefit percentage, all contributions allocated (or benefits accrued) for the plan year are included, even if those amounts have been distributed to the participant. The IRS has not clearly dealt with this issue in the context of corrective distributions under IRC §401(k), §401(m), §402(g) and §415

2.i.1)Corrective distributions under §§401(k) and 401(m). Presumably, corrective distributions under §401(k) or §401(m) (i.e., excess contributions under the ADP test or excess aggregate contributions under the ACP test) should be included in calculating a participant's benefit percentage, because those amounts are included in the nondiscrimination test.

Recharacterization as catch-up contributions. In some cases, all or a portion of the excess contributions under IRC §401(k)(8) that are allocable to an HCE will be recharacterized as catch-up contributions under IRC §414(v) and will not be distributed. See Treas. Reg. §1.414(v)-1(d)(2)(iii) and the discussion in Section VIII, Part A.1.f., of Chapter 11. Elective deferrals for the current plan year that are recharacterized as catch-up contributions would be excluded from the benefit percentage included in the average benefit percentage test. See 3.a.2) below.

[tghooper]

Thanks Tom.  It was late last night and I wasn't thinking clearly.

So ABT is for the full $51K even though my annual additions has been reduced.  Makes more sense now since the crediting rule seems to reduce the individual's limit and not the plan's limit (such as a short limitation year).