XIX. Distribution of excess aggregate contributions

Statement of Requirement: Code §§ 401(m)(6) and 4979; Reg. § 1.401(m)-2(b)

(Note to reviewer: Excess Aggregate Contributions for a Plan Year must be distributed no later than 12 months after such Plan Year. However, any excess amounts distributed more than 2½ months (6 months in the case of certain plans with an eligible automatic contribution arrangement) after the last day of the Plan Year in which such excess amounts arose will be subject to a 10-percent excise tax under Code § 4979. This tax is imposed on the Employer with respect to such amounts.)

Sample Plan Language:

Notwithstanding any other provision of the Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than 12 months after a Plan Year to participants to whose accounts such Excess Aggregate Contributions were allocated for such Plan Year. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage Amounts and continuing in descending order until all the Excess Aggregate Contributions have been allocated. If such Excess Aggregate Contributions are distributed more than 2½ months after the last day of the Plan Year in which such excess amounts arose, a 10-percent excise tax will be imposed on the employer maintaining the Plan with respect to those amounts. Excess Aggregate Contributions shall be treated as annual additions under the Plan even if distributed.

Determination of Income or Loss: Excess Aggregate Contributions shall be adjusted for any income or loss. The income or loss allocable to Excess Aggregate Contributions allocated to each participant is the income or loss allocable to the participant's Employee Contribution account, Matching Contribution account, Qualified Matching Contribution Account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Nonelective Contribution account and Elective Deferral account for the Plan Year multiplied by a fraction, the numerator of which is such participant's Excess Aggregate Contributions for the year and the denominator is the participant's account balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during such Plan Year.

(Note to reviewer: The Plan may use any reasonable method for computing the income or loss allocable to Excess Aggregate Contributions, provided that such method is used consistently for all participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to participants' accounts. Gap-period income or loss attributable to the period from the end of the plan year to the

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date of the distribution must be excluded from any distribution of Excess Aggregate Contributions. See Code § 401(m)(6)(A).)

Forfeitures of Excess Aggregate Contributions: Forfeitures of Excess Aggregate Contributions may either be reallocated to the accounts of Non-highly Compensated Employees or applied to reduce employer contributions, as elected by the Employer in section ____ of the adoption agreement.

Accounting for Excess Aggregate Contributions: Excess Aggregate Contributions allocated to a participant shall be forfeited, if forfeitable or distributed on a pro-rata basis from the participant's Employee Contribution account, Matching Contribution account, and Qualified Matching Contribution account (and, if applicable, the participant's Qualified Nonelective Contribution account or Elective Deferral account, or both). Distribution of Elective Deferrals that are Excess Aggregate Contributions shall be made from the participant's Pre-tax Elective Deferral account before the participant's Roth Elective Deferral account, to the extent Pre-tax Elective Deferrals were made for the year, unless the participant specifies otherwise.

Definitions:

1. "Excess Aggregate Contributions" shall mean, with respect to any Plan Year, the excess of:

a. The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of each Highly Compensated Employe es for such Plan Year, over

b. The maximum Contribution Percentage Amounts permitted by the ACP test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).

Such determination shall be made after first determining Excess Elective Deferrals pursuant to section ___ of the Plan and then determining Excess Contributions pursuant to section ___ of the Plan. (INSERT SECTIONS OF THE PLAN CORRESPONDING TO CODA LRMs IV AND VII.)

Sample Adoption Agreement Language:

(Note to reviewer: A Pre-approved Plan is not permitted to use QNECs and/or QMACs to correct a failed ADP test where prior year testing is being used.)

In computing the Actual Contribution Percentage, the Employer shall take into account, and include as Contribution Percentage Amounts:

[ ] a. Elective Deferrals

[ ] b. Qualified Nonelective Contributions

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under the Plan or any other plan of the Employer.

The amount of Qualified Nonelective Contributions that are made under section [ ] of the Plan and taken into account as Contribution Percentage Amounts for purposes of calculating the Actual Contribution Percentage shall be:

[ ] a. All such Qualified Nonelective Contributions.

[ ] b. Such Qualified Nonelective Contributions that are needed to meet the Actual Contribution Percentage test stated in section ___ of the Plan. (BOX B CAN ONLY BE CHECKED IF THE EMPLOYER HAS ELECTED IN THE ADOPTION AGREEMENT TO USE THE CURRENT YEAR TESTING METHOD.)

The amount of Elective Deferrals made under section ___ of the Plan and taken into account as Contribution Percentage Amounts for purposes of calculating the Actual Contribution Percentage shall be:

[ ] a. All such Elective Deferrals.

[ ] b. Such Elective Deferrals that are needed to meet the Actual Contribution Percentage test stated in section ___ of the Plan. (Box b can only be checked if the Employer has elected in the adoption agreement to use the Current Year Testing method.)

Forfeitures of Excess Aggregate Contributions shall be:

[ ] a. Applied to reduce employer contributions for the Plan Year in which the excess arose, but allocated as in b, below, to the extent the excess exceeds employer contributions or the Employer has already contributed for such Plan Year.

[ ] b. Allocated, after all other forfeitures under the Plan, to the Matching Contribution account of each Non-highly Compensated Employee who made Elective Deferrals in the ratio that each such employee's Elective Deferrals for the Plan Year bears to the total Elective Deferrals of all such employees for such Plan Year.

(INSERT, IN THE ABOVE BLANKS, REFERENCES TO PLAN SECTIONS CORRESPONDING TO CODA LRMs III, VII AND XIII.)

(Note to reviewer: Except as providedA s discussed in CODA LRMs XI and XIV and discussed in accompanying Notes to Reviewe r sections regarding application of the January 18, 2017, proposed regulations , forfeitures cannot c an be used as t o fund Qualified Nonelective Contributions , and Qualified Matching Contributions or Elective Deferrals. )

(Note to reviewer: Matching formulas, other than those above, such as those based on a flat-dollar amount or ones that provide targeted matches to lower paid Non-highly

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Compensated Employees, must satisfy additional requirements specified in Reg. § 1.401(m)-2(a)(5).)