ADP & ACP testing is only performed on "eligible" HCEs

[Moe Howard]

I'll buy anyone, who reads this message, a large ham po-boy sandwich from the best sandwich shop in New Orleans - if they can show me any place in Benefits Link which says that ... the only highly compensated employees & the only non-highly compensated employees that are considered when performing the ADP, ACP, and mutiple use tests are those HCEs & NHCEs that meet the eligibility requirements of the plan being tested.

(For example: If employer has 10 HCE and 30 NHCE ... but only 2 of the HCE & 5 of the NHCE meet the 1 year of service & age 21 requirement per the plan documnet ... then the ADP, ACP, & Mutiple Use tests are only performed on the 2 HCE & 5 NHCE).

Why is something so basic not mentioned in any message or Q&A in Benefits Link ?

[Tom Poje]

Moe-

say hello to Curly for me. Loved you in 3 stooges!

all kidding aside, I don't think anyone has ever addressed your point on Benefits Link, though it is found in the regs

1.401(k)-1(g)(4)

eligible employee(i) The term ELIGIBLE employee means an employee who is directly or indirectly eligible to make a cash or deferred election under the plan for all or any portion of the year.

this leads to

1.401(k)-1(B)(2) actual deferral percentage test

(A) the actual deferral percentage for the group of ELIGIBLE highly compensated employees is not more than the group of all other eligible employees.....

a similar point can be found in 1.401(m) for match. 1.401(m)-1(f)(4).In fact, if the match has an hours condition or last day provision, then there may be less bodies, because there are less ELIGIBLE bodies. However, for purposes of coverage, the bodies count if they are terminees with more than 500 hours.

Good bet though. no one has previously posted the reg cites that I know of!

[rcline46]

There is nothing that says you test ONLY those who meet the maximum statutory eligibility! The regulations allow you to form two component plans - those meeting statutory, and those not. You must test BOTH groups.

This capability extends over ALL testing, not just 401(k)/401(m) testing. Your search should be under testing - statutory exclusions.

[MWeddell]

Okay, I like a challenge, although I won't be in New Orleans to collect on the sandwich.

RLewis's post in this thread refers to the rule that only employees eligible to make elective deferrals during the plan year are included in the ADP test and also cites the relevant regulation:

http://www.benefitslink.com/boards/index.php?showtopic=4164

Tom Poje's cite here explains the concept although that time Tom didn't cite the regulation:

http://www.benefitslink.com/boards/index.php?showtopic=10564

KB's post explains the same concept very concisely:

http://www.benefitslink.com/boards/index.php?showtopic=4712

[Guest merlin]

One small clarification to rcline46's post. IRC 401(k)(3)(F) and 401(m)(5)©,added by SBJPA for 1999, to perform one ADP/ACP test taking into account all statutory employees and those otherwise excludables who are HCEs. Thus, what previously was the second test on the disaggregated group now becomes an automatic pass because the group now consists only of NHCEs.

[Tom Poje]

an even smaller note to Merlin's note:

SBJPA's change is entirely optional, and not required. you can still perform 2 tests if you want.

[Moe Howard]

Thanks everyone.

MWeddell: Would you like me to overnight the sandwich to you?

[Tom Poje]

fax it to him

[Erik Read]

Better yet - send it softcopy through e-mail. I'm sure you can find a nice picture of a great po-boy - that ought to do.

[MWeddell]

Moe,

Nah, enjoy the sandwich yourself!

Sorry for the slow response: I was out of town for a few days.

-- Michael