Safe Harbor Plan With After Tax

[Guest mkelly]

Facts: the plan is safe harbor for testing for 2001, but has an after tax source that must be tested in ACP. They Document states Prior Year Testing Method. For 2000 the ACP test included After tax and employer match.

Question: Using Prior Year Testing Method , comparing Current Year HCE ACP , which consists solely of after tax contributions, to Prior Year NHCE ACP, which consists of after tax and employer match, the ACP test passes. Is this Okay, since we are not comparing same sources of money? I haven't found anything that says it is not. The Test will fail miserably using Current Year method, and will fail in 2002 using Prior Year NHCE ACP ....the plan has mostly HCES contributing to After Tax.

[Guest pineapple]

Sorry mkelly, but if the plan wants to use the safe harbor, it must use current year testing method. See Notice 98-52.

[Guest mkelly]

Thanks,

Yet the document, effective 1/1/01, says to use Prior Year???

I guess I have to go back to the client..

[Guest pineapple]

Is this an individually designed plan? Otherwise, I'm surprised that the document does not state that if the safe harbor is used, then current year testing must also be used. The IRS required that we put that provision in our volume docs.

Before you talk to the client, check the safe harbor provision of the plan carefully to make sure it doesn't say current year testing will be used.