Testing Method

[Guest andmik]

Hello,

Any insight will be appreciated. I have a plan sponsor who has amended its Plan for GUST. They did not "declare" the method in the Plan Document and apparently counsel does not believe this is required. It was my understanding that the IRS requires that the testing methods be identified within the document itself, and therefore requiring a formal amendment to change in future years?

If someone could confirm my understanding or lack thereof, it will appreciated.

[Guest Bud]

The 401(k) regs say that the plan document has to say that ADP and ACP testing will be satisfied and I think Notice 98-1 says that the plan document has to specify the testing method.

[Guest jhinkle]

Andmik, I agree with Bud.

Section IX of Notice 98-1 provides as follows: "Sections 1.401(k)-1(B)(2)(iii) and 1.401(m)-1(B)(2) require that a plan to which § 401(k) or § 401(m) applies must provide that the ADP or ACP test will be met. Because a plan may now use either the current year testing method or the prior year testing method, a plan must specificy which of these two testing methods it is using. If the employer changes the testing method under a plan, the plan must be amended to reflect the change."

[Guest andmik]

I want to thank you both for providing your insight. Section IX. of 98-1 clearly provides the need to declare the method in the Document.

andmik