ADP/ACP after plan merger

[Guest Lee Buchele]

Notice 98-1 explains how to determine the ADP/ACP for NHCEs after a change in the eligible group where a plan uses the prior year testing method. It calls for the use of an adjusted ADP/ACP, which are the ADP and ACP "for the prior year of the specific plan..." Does this mean we are to use the results of the prior year's ADP/ACP tests for each subgroup of NHCEs, which in turn are based on data for the second prior year? Or are we to calculate an ADP and an ACP in the current year based on prior year's data? If the latter, why does there need to be a special rule?

[Tom Poje]

If my fading memory serves me correctly, you simply combine the prior year tests (weighted average)

thus if you had

plan 1 ADP NHCE (15 ees) 4.00

plan 2 ADP NHCE (10 ees) 3.00 is not

(4 + 3) / 2 = 3.5 average but rather

15 * 4 = 60

10 * 3 = 30

total ees = 25

total 'sum' = 60 + 30

adp avg = 90 / 25 = 3.60