Switching from Prior Year to Current Year Testing Method

[Guest CRC02]

A Plan uses the prior year method for nondiscrimination testing. The Plan Admin would like to retroactively amend the Plan to use the current year method beginning with the 2001 plan year. Can a plan be retroactively amended to switch? Notice 98-1 says that "A plan using the prior year method may adopt the current year testing method for any subsequent testing year." Should this be interpreted to mean that you may only amend to switch to the current year method in a plan year prior to the first year in which it will apply? There is an 1999 ASPA Q&A on this subject (#60 for anyone who wants to take a peek), but the answer is unclear at best (the question is whether A or B applies, and the IRS answer is essentially "yes").

[Guest Eprail]

My sense is that the Plan Administrator may not retroactively elect current year testing. I haven't reviewed the ASPA Q&A to which you cite, but if the IRS truly responded "yes" to a question about retroactivty, it likely concerned a retroactive amendment, not a retroactive election.

So long as a plan amendment is timely reflected within the appropriate remedial amendment period, it's clear that the amendment may be made retroactively to reflect how the plan was actually operated. However, the purpose in requiring the testing method to be established on a propsective basis is to avoid the very sort of "shopping" that you describe (i.e., choosing testng method based on which method will produce more favorable results).