Any guidance on who has the responsibility for monitoring 402(g) limit

[John A]

Is there any formal (or informal) guidance stating that employees are responsible for monitoring their own 402(g) deferral limits when they participate in the plans of unrelated employers during the same calendar year?

[Guest GregSelf]

401(a)(30) specifically addresses excess deferrals to one or more plans maintained by the SAME employer. It puts the burden on the employer by saying a "plan cannot accept elective contributions in excess....". For unrelated employer plans, I would take the position that it is the employee's responsibility. In this case the qualification of either plan is not at risk (as long as they don't independently accept more than the limit). Rather, the employee suffers the tax consequences.

[Guest]

I think it's up to the Participants.

[MWeddell]

I agree with the above postings. It's the employer's responsibility if the 402(g) violation occurs within plans sponsored by the same employer (including employers in the same controlled group, affiliated service group, etc.). One can see this by contrasting 401(a)(30) and 402(g). See especially Code Section 402(g)(2)(A)(i) which puts the burden of spotting the problem on the participant.

[John A]

MWeddell, thanks for the Code cite. It led me to also find the following [Reg 1.402(g)-1 (e)(4)]

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(4) Plan provisions. In order to distribute excess deferrals pursuant to paragraphs (e)(2) or (e)(3) of this section, a plan must contain language permitting distribution of excess deferrals. A plan may require the notification in paragraphs (e)(2) and (e)(3) of this section to be in writing and may require that the employee certify or otherwise establish that the designated amount is an excess deferral. A plan need not permit distribution of excess deferrals.

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This seems to indicate that one should check the plan document for the employee certification requirement.

My initial question was an attempt to find written guidance - I was already certain that it was the responsibility of the individual, I just had not been able to find it in written guidance.

However, in reading through the guidance, I was surprised to learn (on a different issue) that the individual could designate what was an excess deferral in each plan, rather than being required to use last-in first-out.

I also am now wondering whether or not the employer has the responsibility for excess deferrals even if all of the deferrals are from the same employer, given that the guidance seems to indicate that an employer MAY designate that the employer may notify the plan on the individual's behalf in this case.

[MWeddell]

Given that Code Section 401(a)(30) states that adherence to the 402(g) limit on elective deferrals is a qualification requirement to the extent the limit is violated within that employer's plans and given that timely refunded elective deferrals aren't treated as a qualification problem (see Treas. Reg. 1.402(g)-1(e)(1)(i)(penultimate sentence)), if the employer cares about keeping its plan qualified, then the employer should monitor the 402(g) limits within its own plans.

I don't think you'll find anything more precise about whose responsibility it is.

[actuarysmith]

We have had this issue arise in our plans several times. We are firmly of the position that there is ONLY ONE person who would have the ability to determine if their had been a 402(g) violation if more than one plan is involved (with unrelated employers) - IT IS THE PARTICIPANT!!

The payroll companies, plan sponsors, and plan administrators do not have resources, nor the obligation to check out every single participant in every single one of their plans - this would be onerous, expensive, and frankly completely unwieldy.

Tell that participant to go look in the mirror!

[david rigby]

Yes, all above is good advice. But there is a practical issue: almost no plan participants are aware of this limitation.

I'm not sure if the ER has any responsibility to notify them. The danger might be: if the ER does such notification (probably in a generic manner), and then later misses an employee who is affected by the 402(g) limit, would the ER have some liability. Any opinions or advice or examples to offer?

[actuarysmith]

Our SPD's state the following -

" You should also be aware that the annual dollar limit is an aggregate limit which applies to all deferrals you may make under this plan or other cash or deferred arrangements (including........ or other 401(k) plans in which you may be participating). Generally, if your total deferrals under all plans exceed the annual dollar limit, you will be taxed...... For this reason, you should request that excess deferrals be returned to you. If you fail to request such a return, you may be taxed a second time when....."

Since the SPD is written in a manner that clearly places the burden on the participant, I don't feel that we have any liability.

I realize that not all participants read the entire SPD. In fact, I seriously doubt that 25% read the SPD. However, from a CYA viewpoint I think that we are covered.

I would suggest that your SPD contain similar language if it does not currently.

[Guest]

The ERISA outline book would add:

the individual decides which plan holds the excess.

as well as

A 402(g) violation does not disqualify if the excess is due to aggregation of the individual's deferrals with a deferral arrangement maintained by an unrelated employer.

...............................

I guess that means:

so now the individual sends in his W-2s and the sum of the deferrals is > limit, so the govt knows. now the individual can't hide the fact and will have to get the deferrals (plus gains) from one of the plans.