What are the deadlines for completing the nondiscrimination testing for 401(k) plans?
Nondiscrimination testing should be completed as soon as possible after the end of the Plan Year to ensure any necessary refunds to Highly Comepensated Employees (HCEs) are completed no later than 2 months following the close of the Plan Year. Refunds made after the 2 -month deadline subject the plan sponsor to a 10% excise penalty. Nondiscrimination testing determines whether the contributions under the plan disproportionately favor HCEs. For Plan Years beginning in 2008, an HCE is any participant who either: (1) earned greater than $100,000 in the prior Plan Year (the look-back year), or (2) is or was a greater than 5% owner in the current or prior Plan Year. For this purpose, spouses, children and parents of greater than 5% owners who are also employees are also considered HCEs. For 2009, the look-back year compensation is increased to $105,000. If the level of 401(k) contributions or matching contributions is determined to be discriminatory, refunds to certain HCEs must be made. Th
