: Excess deferrals
are deferrals in excess of the amount provided for under the plan or election.
Now, plans may satisfy the 401(k) plan discrimination tests by returning excess deferrals
starting with the HCE with the highest dollar amount.
Effective for plan years beginning in 1997, the Act provides that the distribution of excess deferrals
is required to be made on the basis of the amount of contributions made by each HCE.
do not cause plan disqualification when they are made to plans of two or more unrelated employers if they are corrected.
Effective for excess deferrals
attributable to tax years beginning on or after January 1, 2007, gap earnings must be included when excess deferrals
are distributed under Sec.
But if the excess deferrals
are not distributed by that deadline, the proposed regulations would provide that any distribution attributable to an excess deferral
that is a designated Roth contribution is includible in income and not eligible for rollover.
The proposed regulations had no corrective mechanism for nongovernment plans, but the final version allows nongovernment plans to self-correct by distributing the excess deferrals
by the first April 15th following the year of excess deferral
The agent is urged to check for excess deferrals
by requesting annual contribution records and/or salary reduction agreements.
401(k) and (m) rules(22) permitting nondiscrimination testing based on nonhighly compensated employees' (non-HCEs) actual deferral percentages (ADP) and (2) returning excess deferrals
to highly compensated employees (HCEs).
A plan that would otherwise fail to meet the test is not treated as failing if the test is corrected by (1) additional employer contributions, (2) refunds of excess deferrals
or (3) recharacterization of deferrals as employee after-tax contributions.
that cause the plan to lose its Sec.
No matching or QNECs: No matching contributions are allowed to a SARSEP, and excess deferrals
cannot be corrected with qualified nonelective contributions (QNECs).