After Tax Contributions

[Stash026]

I have a client asking to include after-tax contributions (not a Roth) up to the DC Maximum for two partners in a Plan.  Are there any ramifications for doing this?  I haven't had to handle a plan with it in some time.

Thanks!

[Tom Poje]

they show up in the ACP test.

assuming everyone can make after tax contributions then if plan has last day provision for match (or hours requirement) some people who normally would not show on the ACP test are now included as well with 0%.

[Patricia Neal Jensen]

Such contributions are tested so, as a practical matter, adding this provision for HCE use only (who else would do it???) is useless.  It will fail testing.

[spiritrider]

4 hours ago, Patricia Neal Jensen said:

Such contributions are tested so, as a practical matter, adding this provision for HCE use only (who else would do it???) is useless.  It will fail testing.

You are making assumptions not in evidence.

In general, depending on the census some plans make a top-paid group (20%) election such that HCE ACP is lower. As employee after-tax contributions with in-service rollovers have become more available in plans, some NHCEs are taking more advantage of them than would be expected, making the NHCE ACP higher.

Yes, the plan may still fail ACP testing, but often resulting in a reasonable employee after-tax contribution percentage for HCEs. Also, plans can preemptively establish HCE employee after-tax contribution percentage limits that facilitate passing the ACP testing.

So while ACP testing on employee after-tax contributions can be problematic. It is no slam dunk that they should be avoided in all plans.

Specifically and most importantly, the OP provided no information that there are any NHCE employees. For all you know this could be a one-participant plan with no testing required.