402(g) excess - two jobs

Participant has informed my client that they are over the 2018 402(g) limit because they did the maximum deferral at their other job.  Participant entered my client's plan as of 10/01/2018 and deferred a small amount.  The participant has requested this small amount of contributions be refunded as excess.   

As far as the 2018 ADP testing in my client's plan,  do I need to remove the deferrals for this person from the testing?

I know that I would have to remove them if the overage was all in my client's plan, but am unsure of the process when there was no excess, only the request of the participant.

Thanks in advance! 

If NHCE, it comes out.  if HCE, it stays in.

Good question. I do not know  the answer when 2 unrelated plans are involved.

I do know that if it is one single plan where you exceed the limit than it if the employee is an HCE you include the amount in the ADP test, but if the employee is an NHCE you do not include the amount in the ADP test.

Because the the excess is due to two unrelated plans my guess is that you include the amount in the ADP test but I do not have a citation to back that up. Perhaps someone else has something more concrete for you.

Test it both ways.  Do any of the tests fail?  If not, no big deal.

8 minutes ago, BG5150 said:

Test it both ways.  Do any of the tests fail?  If not, no big deal.

I can't tell you how many times this is how I have done testing.  I tested until we knew it passed no matter how the unknowns turn out.  

If it's an HCE, it's in the ADP test.  If it's an NHCE, it's only excluded from the ADP test to the extent the amount deferred in the plan(s) of the employer exceeds the deferral limit.  In the case under discussion, it counts in the ADP test.

Quote

1.401(k)-2(a)(4)(iii) Elective contributions for HCEs. Elective contributions of an HCE must include any excess deferrals, as described in §1.402(g)-1(a), even if those excess deferrals are distributed, pursuant to §1.402(g)-1(e).

Quote

1.401(k)-2(a)(5)(ii) Elective contributions for NHCEs. Elective contributions of an NHCE shall not include any excess deferrals, as described in §1.402(g)-1(a), to the extent the excess deferrals are prohibited under section 401(a)(30). However, to the extent that the excess deferrals are not prohibited under section 401(a)(30), they are included in elective contributions even if distributed pursuant to §1.402(g)-1(e).

Quote

401(a)(30) Limitations on elective deferrals.—In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.

It is a NHCE participant and two completely separate Employers/Plans.  Our client would have no knowledge of the excess if participant had not come to them for the refund. 

The plan we administer fails ADP miserably every year.  Of course taking out the contributions for this NCHE causes an increase in already large refund amounts.  

Kevin C since the participant did not exceed any Plan limits in our client's plan we are free to leave the deferrals in the Plan and test them there?  In addition, the plan has an annual discretionary match contribution which has not yet been deposited for 2018.  If the deferrals are in the ADP for 2018 shouldn't this participant still receive 2018 matching contributions on the 2018 deferral contributions that the participant made?  Are those match contributions then forfeited once the deferral contribution refund is processed?

thank you for all replies!

when the person files their taxes, the W-2s will indicate the overage.

so they will pay taxes on those amounts. if they are not distributed by April 15 then they will get taxed again at distribution time, so it would penalize the participant to leave the $ in.

yes, neither plan accepted  deferrals greater than the limit so neither plan would be disqualified leaving the amounts in, but it isn't fair to the participant and the participant requested the refund

Hi Tom - We are processing a refund to the participant - I was referring to whether or not to leave the deferrals  in the ADP test, not leaving them actually in the Plan , sorry I wasn't clear!

I'm also trying to figure out that if it IS ok to leave them in the 2018 ADP testing, then is the participant entitled to the 2018 Employer match on those contributions and if so, are the match contributions then forfeited because the participant in essence won't have deferred anything for 2018?

3 hours ago, pmacduff said:

Kevin C since the participant did not exceed any Plan limits in our client's plan we are free to leave the deferrals in the Plan and test them there? 

In addition, the plan has an annual discretionary match contribution which has not yet been deposited for 2018.  If the deferrals are in the ADP for 2018 shouldn't this participant still receive 2018 matching contributions on the 2018 deferral contributions that the participant made?  Are those match contributions then forfeited once the deferral contribution refund is processed?

I don't think you have a choice about including these deferrals in the testing, the regs say they are included.

You should find your match question addressed in your plan document.  Our VS document handles it the way you describe; the match is made and then the portion of the match attributable to the excess deferral is forfeited.  You will find it in the regs at 1.401(m)-2(b)(3)(v).

4 hours ago, Tom Poje said:

... but it isn't fair to the participant and the participant requested the refund

Fair??? When I've dealt with this issue from the podium I have made it clear that a plan MAY, but is not required to honor a refund request of this sort.  What does the plan say?   It is unfair to a plan sponsor that pays meticulous attention to 401(a)(30) to be forced into the administrative hassle associated with processing a refund, and to accurately determine the impact on testing.