401(k) Testing

[Guest mjakel]

In a 401(k) plan, where all the NHC have chosen not to contribute so their ADP = 0%, what is the maximum ADP the HC can have using current year testing?

[R. Butler]

0%, unless the HCE is over 50 and then he could do the catch up contribuiton.

[R. Butler]

My prior post assumes this is just a vanilla 401(k), no ADP/ACP safe provisions or SIMPLE provisions.

[MWeddell]

I agree with the above. Let's add to the list of assumptions that this was not the first plan year in which the plan had a 401(k) arrangement and that the plan's ADP test is performed using the current year method.

[austin3515]

IS that because the limit is the lesser of ADP of NHCE's plus 2 or 2x the ADP of NHCE's?

I guess I was thinking it would be 2%?

LEt's say there were 100 NHE's deferring 0%. Would that indicate that the plan was not effectively available to the employees? Would that cause a separate problem?

[R. Butler]

austin3515,

"IS that because the limit is the lesser of ADP of NHCE's plus 2 or 2x the ADP of NHCE's?" -- Yes

I don't necessarily know the reasons behind the ADP test, I just know how it works.

[austin3515]

Reason? IF you tried to find reason behind any of this stuff it would be a life long unsuccessful mission.

My question was on the mechanics, and your answer was exactly what I was looking for!

Thanks

[Guest yukon]

Why not convert it to a Safe Harbor plan with the Match formula? Then the NHCE ADP doesn't matter, right? And if no NHCEs decide to start contributing, then there is no increased employer cost.