Form 9416 - Employee Plan Deficiency Checksheet Attachment #11 - Section 401(M) Requirements Page 2
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1115
Section
of the plan should be amended to provide that the actual contribution percentages
(ACPs) of highly compensated employees (HCEs) and non-highly compensated employees (NHCEs) are
determined for the relevant plan years. If the plan is using the prior year testing method, the ACP of HCEs is
II.b.(v)
determined for the current plan year (the “testing year”) and the ACP of NHCEs is determined for the prior plan year.
If, on the other hand, the plan is using the current year testing method, the ACPs of both HCEs and NHCEs are
determined for the current year. IRC section 401(m)(2)(A).
Section
of the plan should be amended so that the availability of employee contributions (and
1112
matching contributions, if applicable) does not discriminate in favor of highly compensated employees.
IRC section 401(a)(4) and Regs. section 1.401(m)-1(a)(2).
II.c.
1136, 1137,
Nonelective employer contributions may be treated as matching contributions for purposes of the actual
1138, 1139
contribution percentage (ACP) test of IRC section 401(m) only if such contributions are nonforfeitable when
made to the plan and distributable only under the following circumstances:
III.a.(i), (ii)
1. The employee’s death, disability or severance from employment;
2. The termination of the plan without establishment or maintenance of another defined contribution plan (other than
an ESOP, a SEP, a SIMPLE IRA plan, a section 403(b) plan or a section 457 plan) and the distribution is in the form of
a lump sum;
3. In the case of a profit-sharing, stock bonus or rural cooperative plan, the employee’s attainment of age 59 ½.
Nonelective contributions which may be treated as matching contributions must satisfy these requirements without
regard to whether they are actually taken into account as matching contributions. Section
of the plan
should be amended accordingly. IRC section 401(m)(4)(C) and Regs. sections 1.401(k)-2(a)(6) and -5.
1147
Section
of the plan should be amended to provide that elective contributions and/or qualified
nonelective contributions may be treated as matching contributions only if the conditions described in section
1.401(m)-2(a)(6) of the regulations are satisfied. IRC section 401(m)(3) and Regs. section 1.401(m)-2(a)(6).
III.b.
1113, 1114
Section
of the plan should be amended to provide that the amount of excess aggregate
contributions under a plan subject to the requirements of section 401(m) will be determined in the following
manner. First, determine how much the actual contribution ratio (ACR) of the highly compensated employee with the
IV.c.(i)
highest ACR would have to be reduced to satisfy the actual contribution percentage (ACP) test or cause such ratio to
equal the ACR of the highly compensated employee with the next highest ratio. Second, this process is repeated until
the ACP test would be satisfied. The amount of excess aggregate contributions is equal to the sum of these
hypothetical reductions multiplied, in each case, by the highly compensated employee’s compensation. IRC section
401(m)(6)(B) and (C) and Regs. sections 1.401(m)-2(b)(2) and (3).
1118
Section
of the plan should be amended to provide that the amount of excess aggregate
contributions for a plan year shall be determined only after first determining the excess contributions that are
treated as employee contributions due to recharacterization. Regs. section 1.401(m)-2(a)(4)(ii).
IV.c.(ii)
1119, 1120
Section
of the plan should be amended to provide that the distribution (or forfeiture, if
applicable) of excess aggregate contributions will include the income allocable thereto. The income allocable
to the excess aggregate contributions includes income for the plan year for which the excess aggregate contributions
III.c.(iii)
were made and for the period between the end of the plan year and the date of distribution (or forfeiture). See section
1.401(m)-2(b)(2)(iv) of the regulations for a description of the manner in which income allocable to excess aggregate
contributions is to be calculated. IRC section 401(m)(6)(A) and Regs. section 1.401(m)-2(b)(2)(iv).
1121
A method of correcting excess aggregate contributions must meet the nondiscrimination requirements of
section 401(a)(4). A method under which employee contributions are distributed to highly compensated
employees to the extent necessary to meet the requirements of section 401(m)(2), while matching contributions attri-
IV.c.(iv)
butable to such employee contributions remain allocated to the employee’s account, will not meet the requirements of
section 401(a)(4). Section
of the plan should be amended accordingly. Regs. section 1.401(m)-
2(b)(3)(v)(B).
1122
Failure to correct excess aggregate contributions by the end of the 12-month period immediately following
the end of the plan year for which they were made will cause the plan to fail to satisfy the requirements of
section 401(a)(4) for the plan year for which the excess aggregate contributions were made and for all subsequent
IV.c.(v)
years they remain uncorrected. Also, the employer will be liable for a 10% excise tax on the amount of excess
aggregate contributions unless they are corrected within 2 1/2 months after the close of the plan year for which they
9416
Cat. No. 14162J
Form
(Rev. 11-2006)
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