shifting adp deferrals to dilute my acp

[Bri]

This plan fails multiple use. There are two HCEs who don't have the necessary hours or last-day employment status necessary for receiving a match. Therefore, only one of the original three HCEs is actually in my ACP denominator. And because of that, her 2% match provides me with a 2.00/1 HCE = 2.00 ACP, and that's slightly too high.

Question is: Is it possible to treat even a dollar of a terminated HCE's deferrals as match? This has the effect of "forcing" him into the ACP test, doesn't it? Then my ACP is 2.00 + 0.01 = 2.01, divided now by 2 HCEs giving me a nice 1.01 ACP, and a plan that now passes multiple use.

The specific regulation 1.401(m)-1(B)5

says that any of the deferrals treated may be treated as matching contributions....if they are deferrals of employees eligible under the plan being tested. Now, this guy was previously ineligible for the 401(m) component....but it doesn't REALLY say component plan, it says plan. And this guy was eligible for the 401(k) arrangement. So I *think* I'm on to something here.

Anyone want to say yes or no to that?

Thanks

bri

[Tom Poje]

I think the common quote among pension gurus would be

'does it pass the smell test?'

my gut feeling would be this is a rather aggresive interpretation of things, and I would be worried an IRS agent would disallow it, possibly on these grounds:

The ACP test consists of those 'eligible' for the match.

you are treating a deferral as a 'match', but that is different than saying the individual is actually eligible for the match - at least in my opinion.

Using your argument, if I failed 410(B) coverage for the 401(m) portion of the test, I could treat some NHCEs deferrals as a 'match' and then I would 'pass' 410(B). ugh. now it really smells.

my opinion only, of course.