Otherwise excludible - 0 NHCES

[Guest Chris May]

I have a new company, with a new plan. Using the otherwise excludible method gives me 0 eligible ees. I undestand that I am too keep the hce's in the test, but now there are 0 nhces to compare against. Do I automatically pass ADP when 0 nhce's are excluded?

[Tom Poje]

well you can't have 0 eligible employees!

401(k)(3)(F)

"... the employer may...exclude from consideration all eligible employees (other than HCEs) who have not met the minimum age and service requirements of 410(a)(1)(A)

therefore, you have a test with only HCEs, so plan passes.

Note: Not that it probably makes a difference, but this rule does not apply to coverage testing or cross testing!

[BFree]

what happens if you test on prior year results next year?

[Archimage]

You would need to amend your plan to use current year testing unless you want to keep your HCEs from deferring which I don't think the case will be.

[Richard Anderson]

I have the same question as BFree.

We have a 401(k) plan that is new for 2001. The 2001 ADP test was done using current year testing. All employees were hired in 2001. All HCHs (2 owners) were first employed on 6/2000. Using current year testing and excluding all without a YOS leaves only HCEs in the test. The 2001 ADP has no non-excludible NHCEs.

The question now is: When doing 2002 ADP testing using prior year testing; do we again have no NHCEs in the test since in the prior year all NHCEs were excludible?

Our office is divided on the answer to this question.

[Archimage]

You are correct. There are no NHCEs.

[Richard Anderson]

Thanks Archimage.

But, Bfree asked the same question and you had a different answer.

At least I think it was the same question.

[Archimage]

I assumed BFree's plan had selected current year testing. I am assuming your new plan selected to use prior year testing but for the first year picked the option of using current year testing over 3%. Unless I am misunderstanding the questions, you have two different situations.