401k refund due to Profit Sharing contribution?
If an employee maximizes his 401k elective deferral during a tax year, and then at the end of the year the company decides to add a Profit Sharing contribution that would put the total contributions made to the account over the 415c limit of $49,000 would the person get a refund on his elective deferrals or would the company reduce the company Profit Sharing contribution to stay in compliance with the $49,000 limit?
It seems to me that the employee would get a refund of elective deferral because to reduce the company Profit Sharing contribution for that employee would reduce his Profit Sharing %.
Any help would be greatly appreciated.
Thanks,
Steve Fisher
Permalink Submitted by Alan Spross on Thu, 2011-12-08 22:24
This is somewhat outside my area, but as far as I can tell the following provision from Rev Proc 2008-50 would apply for plan years after 1/1/2009:
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If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee’s after-tax contributions (adjusted for earnings) and then the unmatched employee’s elective deferrals (adjusted for earnings). If any excess remains, and is attributable to either elective deferrals or after-tax employee contributions that are matched, the excess is apportioned first to after-tax employee contributions with the associated matching employer contributions and then to elective deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for earnings) which constitutes an Excess Allocation is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year(s). Such unallocated account is adjusted for earnings. While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan.
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