by a noninsider are also permitted to be corrected through a distribution of the excess deferral
by the end of the year immediately following the year in which the failure occurred.
Under prior law, 401(k) plans satisfied the discrimination tests by returning excess deferral
contributions to the HCEs who had the highest deferral percentages, as opposed to the HCE with the highest deferral amount.
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
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.
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).