Coordination of Excess Contributions

[Guest lforesz]

I have a cross-tested 401(k) profit sharing plan that failed the ADP test. We are returning excess contributions to the HCEs. Do we have to include the returned amounts in the HCES benefit percentages when running the average benefits test?

[Richard Anderson]

For average benefit testing purposes I think that you must include contributions made to the plan without regard to whether subsequently a distribution was made to correct a failed ADP test.

But if distributions are made to correct a 402(g) limit violation then I have been including or not including those distributions in the average benefits test based on whether the participant is a HCE or NHCE. If the participant is an HCE I include the 402(g) corrective distribution, if the participant is a NHCE I don't include the distribution amount. This is the way that 402(g) corrective distributions are treated for purposes of the ADP test, so I think it is resonable to treat the distribution the same for the average benefits test.