Orphan Match / Individual 402g Limit

Participant maxes out his 401k at Employer at $26,000.  He starts a new job in December with immediate eligibility and a match.

My advice is go ahead and contribute to get the match and then request a refund of your 401k after year-end.  My recollection (which I cannot confirm) is that such a refund request would not kick off an orphan match situation requiring match forfeitures.  The logic of course is the employee could request the excess refund from either plan.  Anyway if someone can set me straight one way or the other I would appreciate it. 

Completely different of course then someone getting matched on 401k over $26,000 in the same plan or even for the same employer.

Does the plan document address what happens to the match when excess deferrals are refunded?

Should the plan document address what happens to the match when excess deferrals are refunded?  😁

Our document provider never would have included a provision to forfeit the match if it was not required by law.  Sometimes your head spins reading through those documents, but reading the message board responses of brilliant industry experts tends to be more efficient 👍

2 minutes ago, austin3515 said:

Our document provider never would have included a provision to forfeit the match if it was not required by law.

I would replace "by law" with "to obtain a favorable determination letter." The IRS has been known to impose requirements on authors of pre-approved documents that are more stringent than what exists in the text of the law or regulations.

For what it's worth, the document we use does say that the match will be forfeited in this situation. But you would need to examine the documents of the two plans in question to be sure.

Mine makes no mention of such a requirement....  Still it would be nice if there was an article or a reg reference or something  like that.  If anyone has such a thing, please shout out!

Does this argument align with the usual questions over which plan has to refund the over-26 amount?  Neither plan is going to have excess deferrals, just the participant.  So I'd think in theory the participant can tell either/or what amount has to come out, and if he might be able to leave some in each plan such as to avoid leaving the match hanging as an orphan.

Since he can request it from either plan, I'm assuming the full $26,000 wasn't matched. He should request the refund from the first employer down to whatever they would match or the amount needed to satisfy 402(g), etc.

Is the participant an HCE in the plan paying the refund?  There is a discussion of this in one of the Asked and Answered in the Qualified Plan eSource on ERISAPedia.  If you search for QA2986, then scroll down a bit, you'll find it.  The gist is that if an HCE receives a higher rate of match after the refund, you have a BRF problem unless the match based on the refund is forfeited.  The plan may provide that it is forfeited even if it isn't discriminatory.

Here is what my document says in case anyone is googling this post:

Quote

Any distribution of Excess Deferrals made pursuant to this Subsection shall be made first from unmatched Elective Deferrals (regardless of whether they are attributable to Pre-Tax Elective Deferrals or Roth Elective Deferrals) and, thereafter, from Elective Deferrals which are matched. Matching contributions which relate to Excess Deferrals that are distributed pursuant to this Section 12.2(g) shall be treated as a Forfeiture to the extent required pursuant to Code §401(a)(4) and the Regulations thereunder.

The reference to 401a4 to means the orphan match issue...