Out of the PEO

[Guest Mike Schwing]

Company A was a member of a PEO plan since 01-01-2000. They moved out of the PEO in 2002 and started their own plan effective 01-01-2002.

Assuming the PEO operated the plan as a multiple ER plan (although I'm not sure) and for ADP / ACP testing purposes the employer chose prior testing, what NHCE ratio would they use for 2002 - 3% default for new plan or the actual NHCE percents for their 2001 plan year while they were with the PEO?

For top-heavy I assume the new plan is a successor plan and the balances which transfer are in included in the determination of the account balances - correct?

[Guest Robin Vatalaro]

Mike, according to a 401(k) expert at KPMG whom I heard speak at the 2002 AICPA Benefits Conference in San Diego, you need to use the prior year percent as it stood when the company was w/ the PEO. I unfortunately don't have a cite - does anyone? I presumed since there is a new plan (I have several clients in your situation) that you would use 3% but was told at the seminar this is not correct.

[Guest Mike Schwing]

Thanks Robin,

I can understand the logic of using the prior percent becuase if the plan was treated as a multiple ER plan by the PEO (and I know not all PEO's did it this way) then the employer should have had their own ADP / ACP test. It's just that I've found in dealing with these cases the employer rarely has testing results for their company for the years with the PEO.