Over Contribution, Eat Up as PS Contribution

This is probably stupid but this client deposited $4,300 too much.  They asked if they could allocate it as a PS contribution instead of returning it to the company.  The plan is a straight SH Match, they don't make PS contributions (it's allowed, they just don't).  Problem is, 5 participants who don't defer would receive the PS contribution.  No big deal.  But the plan has individual brokerage accounts at American Funds.  Each of these 5 participants would  need an account of which their balance would range from $125 to $236.  Hardly worth it..agree?  

• Could these 5 participants share one pooled account?
• Would it be best to just pay the overage back to the company?

Thanks

How did they overdeposit if they use individual accounts? (American Funds does not have "brokerage" accounts, unless it is through a different brokerage account.)

There are very limited circumstances under which a contribution may be returned to the company. Unless the $4,300 was the result of a minor typographical or arithmetic error, I wouldn't even consider it.

As you suggested, the excess could (should) be allocated under the plan's allocation formula. Does the plan say that participants will have the right to direct the investment of 100% of their account? If yes, then I don't see how you could allocate amounts for those 5 participants to a pooled account.  If no, then you could do it under the terms of the plan, but you still have to be aware of nondiscrimination testing. The right to direct investment is a benefit, right or feature that has to be available to a nondiscriminatory section of plan participants. If 100% of HCEs have the right to direct their investments but only 50% of NHCEs do (for example) then you might have a problem. Edit: Upon further consideration, I think there's a bigger problem, which is that only participants who have deferred in the past would have the right to direct their investments, which would be a violation of the contingent benefit rule. So I would not advise this approach. If you really want to use a pooled account, I would recommend putting everyone's profit sharing into it, not just the people who don't already have brokerage accounts set up.

Does the plan allow a discretionary match in addition to the safe harbor match? If the plan was written well, it should allow a discretionary ACP safe harbor match in addition to the ADP safe harbor match. If you can allocate the excess as an ACP safe harbor match, that might be the easiest thing to do in this situation. Be aware that the plan probably has a notice requirement when a discretionary match is made.

This plan is a SH Match.  

A plan that has an ADP safe harbor match can also permit a discretionary ACP safe harbor match. You will need to read the document to see if yours does.

Also see my edit to my earlier comment.

That is GREAT advice from CBZ and the best avenue if the plan document allows. 

Thank you... I will explore the document.  Appreciate your help!

Learn something every day 🙂

I think I did it.  Here is what I did....

- Had to give it to all who deferred, even if they were not employed on the last day of the plan year (same as a regular ADP SH Match)
- It was a "discretionary" ACP Match (SH)
- It was a 100% match of whatever % I needed to eat up the $4300 overage (0.373%)

I ran all my tests and came through with a Pass!

Cuse, thank you for the support.

Basically, if you're new to the world of ACP safe harbor matches, here is a great article that talks about how to use them. In your situation, you couldn't do the third "stack" described in the article, since that would had to have been in the document before the beginning of the year, but you might find it interesting nonetheless: https://ferenczylaw.com/the-triple-stack-match-its-not-just-for-pancakes-anymore-autumn-2015/

Thank you!