Prevailing Wage and ACP Test

[Catch22PGM]

Looking for some expert opinions on a strange case (at least for me). A 401(k) plan has enhanced Safe Harbor Match (100% - 4%) that only satisfies ADP. There is a discretionary match of 25% up to 20% for a small group of NHCE so ACP testing is required (don't ask why - a previous TPA let them put it in without explaining the ACP issue). There is a large population of Service Contract Act employees who receive prevailing wage contributions in the plan. The plan document specifies that prevailing wage contributions are QNEC's that offset Safe Harbor Match.

When running the ACP test, should all of the prevailing wage contributions be included for all of the SCA employees - with the 10% limit taken into account? I am having difficulty finding an answer and our software doesn't want to do it. I can usually rely on our software to do the right thing, but I think the prevailing wage contributions should be included in ACP based upon the Safe Harbor Match offset.

[Mike Preston]

What 10% limit are you referring to? Why would any portion of a QNEC be included in an ACP test, whether that QNEC is used to offset the Safe Harbor Match or not?

[Catch22PGM]

Mike - The thinking was that the prevailing wage contribution should be treated as a QMAC since it is an offset to the Safe Harbor Match.  The 10% limit is the amount of prevailing wage contribution that can be included in testing based upon the disproportionate QNEC rules under 1.401(k)-2(a)(6)(iv)(D).  Maybe I'm conflating some rules and confusing myself.  Are you saying the prevailing wage contributions cannot be included in the ACP testing?  This is my first plan where the prevailing wage contribution is used to offset match so I can definitely be wrong on my thinking that it can be used as QMAC. 

[Mike Preston]

There is way too much to unpack. Maybe somebody else can start the process. This week I'm jammed. If this is still hanging out there next week I'll be glad to start the process.