Electing current year ADP testing

[Guest Willy235]

The plan document says prior year will be used for ADP testing. Is it too late to elect/amend to use current year data for 2001 ADP testing?

[Tom Poje]

this is interesting. Thanks for asking the question - it got me to do a little research.

according to the ERISA Outline Book,

'once the plan has been amended to specify the testing method, it must be amended to switch the testing method.'

If I understand the rules correctly, prior year testing was considered 'normal', so switching to current year shouldn't require an amendment, unless I suppose, the current year method was used sometime in the past.

Now, if it actually requires an amendment, then what?

again, according to the ERISA Outline Book, the timing of the amendment is an unknown. there is no established time frame. to quote 'hopefully, the emplore will be able to adopt an amendment at any time before the deadline for correcting a viloation of the ADP test (i.e. 12 months after the close of the plan year) However, IRS representatives have indicated that future regulations may require the amendment by the first day of the plan year for which the change is to be effective"

In other words, no one knows what to do! good luck! This sounds like you need to operate under a 'good faith' interpretation of the regs.

[Guest jhinkle]

I agree with Tom that the timing rules on amendments are unclear.

As I read IRS Notice 98-1, it seems clear that a plan is required to state the testing method used and that an amendment is required to change the stated method. Notice 98-1 also suggests that plans can freely switch between prior and current year testing during the GUST remedial amendment period (RAP). In addition, plans are apparently free to switch from prior to current year testing at any time as compared to the more onerous requirements for switching from current to prior year testing beyond the GUST RAP. Switching from prior to current year testing, however, generally locks the plan into the current year election going forward when done outside the GUST RAP.

I spoke with an IRS agent recently regarding a plan's ability to elect current year testing just for the 2001 year (i.e., the plan had been using prior year testing before 2001 and would continue using it after 2001). The agent did not see a problem with amending the plan's testing method in 2002 to cover the 2001 (calendar) plan year test. However, the agent viewed our ability to make this "window" amendment as GUST related and indicated that the service may apply the GUST RAP (i.e., the period ending 2/28 for individually designed plans) in reviewing the amendment for determination letter purposes.

If your election involves only a retroactive amendment to switch from prior to current year testing for 2001 and future years, you may have an argument that this is not GUST dependent. At any rate, the IRS agent I spoke with did not indicate a problem with making such retroactive amendments on ADP testing issues.

[Guest Willy235]

thanks very much for your excellent and helpful input!

[wmyer]

Rev. Proc. 2002-73 extended the GUST RAP until the later of September 30, 2003, and the end of the 12th month beginning after the date on which the IRS issues a GUST opinion letter for the pre-approved plan. Does this mean that plans can switch freely between current and prior ADP/ACP testing until 9/30/2003, even if they have already signed a GUST adoption agreement? Does this mean they can also change their election retroactively for 2002?