VIII. Recharacterization — 0325 Publ 6087 (PDF)

Statement of Requirement: Code § 401(k)(8); Reg. § 1.401(k)-2(b)

72 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

(Note to reviewer: A Plan may only permit recharacterization where all participants are eligible to make Employee Contributions. Recharacterized amounts may be used in the plan from which Excess Contributions arose or in another plan of the Employer with the same Plan Year. Excess Contributions may not be recharacterized by a Highly Compensated Employee to the extent that such amounts in combination with other Employee Contributions made by that employee would exceed any stated limit under the Plan on Employee Contributions. Recharacterized amounts will be treated as employer contributions for purposes of Code §§ 404, 409, 411, 412, 415, 416, and 417.)

Sample Plan Language:

If elected by the Employer in the adoption agreement, Elective Deferrals allocated to a Highly Compensated Employee as Excess Contributions will be recharacterized. A participant must or may, as elected by the Employer in the adoption agreement, treat Excess Contributions allocated to him or her as an amount distributed to the participant and then contributed by the participant to the Plan. Recharacterized amounts will remain nonforfeitable. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that such amount in combination with other Employee Contributions made by that employee would exceed any stated limit under the Plan on Employee Contributions.

Recharacterization must occur no later than 2½ months after the last day of the Plan Year in which such Excess Contributions arose and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof.

Sample Adoption Agreement Language:

The Employer will [ELECT ONE]:

[ ] a. Distribute all Excess Contributions.

[ ] b. Recharacterize all Excess Contributions.

[ ] c. Distribute or Recharacterize, as chosen by the participant, Excess Contributions allocated to a participant.