ADP/ACP Testing Method Change

[Guest Henry P. Schneider]

My understanding:

During the Remedial Amendment Period (RAP), you are permitted to change between Prior Year Testing Method and Current Year Testing Method without consideration for the new rules restricting the switch from Current to Prior. The method used in the final year of the RAP, however, is the method you are "stuck" with and must adhere to the new rules when changing.

Question:

With the last extension of the RAP to mid-2003, does this now mean that we are free to change Testing Methods for Calendar year 2002 plans, locking us into this method for 2003 and subsequent years?

[Guest kwright]

If you have restated the document for GUST and specified which method shall be used, then you can only switch if you meet new conditions for switching. If you have not yet restated for GUST, you can switch back and forth like we did in prior years.

[Blinky the 3-eyed Fish]

I don't agree. Even if your document spells out the testing method to be used that does not restrict you from amending your plan to another testing method as long as it is within the remedial amendment period.

In other words, one plan does not get punished for restating its document earlier than another.

[Guest Robin Vatalaro]

Furthering this discussion for a question I have........

Is switching allowed through 2003 also? EG we can use whatever method we want for 2003, and are then stuck w/ that for 2004, or is it that we can use whatever method for 2002, and are stuck for 2003?

I have all of my GUST restatements done (during summer of 2002 - all signed by 12/31/02). Mike Preston stated in a 2/1/02 401k Board thread (sorry Mike if things have changed or I happened to have mis-interpreted you) that if you amend before the RAP is up, which I have done w/ every single one of my plans, that the GUST restatement does close your RAP. This was an informal IRS position, per Mike. This would seem to indicate that you do not get the ability to amend your plan for PY vs CY method if you happened to be "efficient."

I have several plans that due to an administrative snafu (that was beyond my control) would highly benefit from being able to switch through 2003. So two issues - is or is not the RAP closed based on efficiency and if not could I still switch for '03 such that it is '04 that is locked. Thoughts?

Thank you!

[Mike Preston]

You have stated my previous understanding correctly. I sure would like Blinky's understanding to be clearly laid out somewhere, though.

If you have amended for GUST, your RAP appears to be extended only if you submit. Just like a regular 401(B) RAP. That is, adopt a plan by last day of plan year. Submit by due date of tax return and the IRS will allow you to amend up through the date that is 30 days after their determination letter is issued (to cover things that might have been identified as "proposed" in the DL process). But, if you don't submit, you can't modify the terms after the end of the year, unless there is a special exception such as 412©(8).

[Guest Robin Vatalaro]

Blinky if you have a cite (or if anyone else does) I would greatly appreciate it! You provide a lot of valuable info on the Boards, I'm not trying to be disrespectful towards you.

It seems very unfair that because I got all my restatements done early that certain of my clients are going to suffer because of it. Luckily most of my clients do not understand these issues enough for me to have to back-pedal my way out. But still...........

[Blinky the 3-eyed Fish]

I was actually unaware of the IRS' informal position Mike states but am undaunted. I will try and find some "proof" or at lease a detailed reasoning when I am able to find the time.

P.S. No disrespect taken. I have been known to be very wrong at times.

[Blinky the 3-eyed Fish]

For what it is worth, I asked this question to Sal Tripodi at a conference I recently attended and he did say that a plan can amend to prior year testing even after the restatement is done. He did not qualify his answer based on if the plan has submitted or not, but I also didn't bring it up specifically.

Personally, I have yet to look further into this.

[Guest Happy Actuary]

Isn't it partly a question of timing? Assume that you are allowed to amend your document, thru the end of the GUST period (ignoring the issue of whether IRS filing affects this ability.)

It seems to me that it is now too late to amend the document retroactively for the 2002 PY (assuming calendar). I think the IRS has stated that such amendments do need to be "timely" = < 12/31/02.

It seems that the only open issue is whether it c/b amended for the 2003 PY

[Blinky the 3-eyed Fish]

What would be the IRS' reasoning be for not allowing a plan to be amended for a 2002 calendar plan year versus 2003? I am trying to think of a distinction, but can't. It's not like the right to a QNEC has been earned, since the plan could always refund dollars.