401(m) refers to a section of the Internal Revenue Code that governs contributions to retirement plans. The 401(m) test is a non-discrimination test that is performed annually and relates to voluntary after-tax contributions. The test involves comparing voluntary after-tax contributions to a retirement plan made by highly compensated employees to those contributions made by non-highly compensated employees, in order to ensure that highly compensated employees are not favored.

A person who earned more than $105,000 in calendar year 2008 was considered "Highly Compensated" by IRS standards; the Fund used that amount in our 401(m) testing of each YMCA for the Retirement Plan year of July 1, 2008 to June 30, 2009.

 

The YMCA Retirement Plan is a "multiple employer" plan with nearly 900 independently incorporated YMCAs.
 

The test is based on a very complex formula, involving salary history, voluntary after-tax contributions, and a ratio analysis for each YMCA.

A YMCA passes the test when the following calculation is satisfied:

 

Based on an excess contribution calculation, a portion or all of the highly compensated employees' voluntary after-tax contributions must be returned to them, along with any interest earned on those amounts.
 

This test can only be done by the Retirement Fund at the end of the plan year (July 1 through June 30). Since voluntary after-tax contributions may be remitted directly to the Fund, the YMCA will not necessarily have complete data until our plan year end.
 

IRS rules require that the testing be completed and any excess contributions and interest returned within 2½ months after the end of the plan year. Since the YMCA Retirement Plan year ends on June 30, testing must be completed and excess amounts returned no later than September 15.
 

The voluntary after-tax contributions returned are not taxable. However, the interest earned on the voluntary after-tax contributions is taxable.
 

If your contributions are returned, then the interest earned on those contributions is considered taxable income and should be reported on your tax return covering the year it was returned. The Fund is required to send you an IRS Form 1099-R related to 2008 no later than September 15, 2009. Interest returned that is earned in 2009 will be reported on IRS Form 1099-R by January 31, 2010.
 

Amounts returned as a result of 401(m) testing cannot be rolled over.
 

No, tax-deferred saving may only be done through payroll deductions.
 

If you redeposit the amount as an after-tax contribution to the Retirement Plan, it is still subject to non-discrimination testing in the future.
 

Maximize your contributions to a 403(b) Smart Account since this account is not subject to 401(m) testing.
 

Retirement Plan Document, the Summary Plan Description, Contribution Limits Worksheet, and the Voluntary Contributions form.