ACP Test

[Guest JEP]

a plan has put a 1,000 accrual requirement on the match contribution. They apparantely have not been following this provision as some distributed accounts (less than 1000 hours) have received matching contributions. Should these participants who technically should not have received match be included in the ACP test? For purposes of the ACP test, they are ineligible as they did not work 1000 hours.

[Tom Poje]

If someone is ineligible to receive a match, then they should not be included in the ACP test.

you have people who have received a match who shouldn't have.

now, the safe harbor method of correction is to amend the plan and bring these people in, and therefore include them on the tests. the non safe harbor method is forfeit the match (reduce future contributions)

see Q and A 150, 151 under 'correcting plan defects' in that forum.

[MWeddell]

IRS regulations rarely tell one precisely what to do when one violates IRS regulations.

Rev. Proc. 2001-17, regarding the EPCRS or whatever the umbrella name currently is for IRS correction programs, doesn't contain any specific guidance. I would think a reasonable interpretation of the general principle that one should restore the plan to the position it would have been in had the error not occurred would support excluding employees who should not have been eligible for any 401(m) contributions from the 401(m) test. However, it's not that clear.