Plan fails adp testing. Client's nonqualified plan provides for a "transfer" of adp refunds to the nonqualified plan. Once they have made a qualified coda, I did not think that those monies could be transferred to the nonqualified arrangement because of the constructive receipt requirements under IRC 409A.

Am I missing something?

jaemmons:

Treasury has taken the position for at least 10 or 15 years that those transfers don't work; the participant must be taxed on the distribution of the amounts out of the plan or there is no correction of the ADP test.

I thought this kind of wrap worked the other direction.

Kirk/pax,

Thank you both for your comments. I thought that this did not pass the "smell test" but just needed to see if I was missing anything. My thinking is that if this were allowed, why would a company ever create a "wrap" arrangement.

Again, thanks.

You have to do it the other way. Put the $ in a non-qualified, and then to the extent allowed, transfer to the qualified plan. There are a bunch of letter rulings on point.

This makes it pretty clear. Internal Revenue Manual:

http://www.irs.gov/irm/part4/ch50s03.html#d0e452949

Section 4.72.2.10.1.6.2 - paragraph 8