Do Prototype plans get an extra year to decide current year vs. prior

[John A]

The end of the remedial amendment period is the end of the plan year starting in 2001. However, prototype plans get an extension to 1 year after receiving a favorable IRS letter. So let's say a prototype gets the IRS letter on August 1, 2001, so that the Remedial amendment period for the plan using that prototype ends August 1, 2002.

Say the plan is a calendar year plan.

Does that plan have the choice of current year or prior year ADP and ACP testing for 2002 no matter what was done in 2001, or is 2001 the last year that the choice is "free?"

[Bob R]

Here's the language from Notice 98-1:

"The change occurs during the plan's remedial

amendment period for the SBJPA changes (see Rev.

Proc. 97-41)."

Unfortunately, it's the only guidance we have so your question is open to interpretation. Personally, I think you could use whatever testing method you want in 2002. The argument I would use to support this is that the testing method affects the testing of deferrals that were made durng the RAP (i.e., from 1/1 to 8/31 - the 12 month period ends on the last day of the 12th month).

Again, that's just my own opinion. More guidance is expected this year, but I don't know if this particular issue will be addressed.

One final caveat -- Notice 98-1 contains an anti-abuse provision. I think the IRS could use this to say changing methods each year, even during the RAP, is abusing the rules. It's subjective so I don't know if the IRS would ever be able to enforce this, but it's something to keep in mind.