When doing a distribution of Excess Aggreate Contributions to correct

[Guest jeffgh24]

When doing a distribution of Excess Aggreate Contributions to correct an ACP test what happens if the Highly-Compensated Employee is not 100% vested?

I understand that you will forfeit the non-vested portion, but which vested percent do you use - the percent vested at the end of the plan year or the percent vested at the time of distribution?

Eg:

I need to remove $1000.00 from a HCE.

He/she was 40% vested at 12/31/1999.

He/she is 60% vested at the time of distribution-9/27/2000.

Do I forfeit $600.00 or $400.00?

Thanks.

[MR]

Don't have a cite handy, but I would think you'd vest at 40%. It doesn't seem likely that the HCE's could be rewarded for tardy corrections.

[Guest]

I can't put my hands on it at the moment, heck my desk is so covered with work I can't see it at the moment.

I have read two strategies on this one:

suppose the HCE has a balance of $3000 in match - and is 40% vested.

Correction is $1000.

1. EE receives $400 and forfeits $600

or

2. EE receives the full $1000. Vested balance = $200.

(40% of $3000 = $1200, ee receives distributions of $1000 and is therefore vested with $200)

(assuming the HCE will continue to work, eventually they will be 100% vested in all remaining $ anyway)

in #2 you are returning all or part of the amount of the person's vested balance - this seems as reasonable method as any.