Guest erisa15 Posted March 7, 2003 Posted March 7, 2003 We have a 401(k) Plan and an ESOP. We failed the ADP test and the company providing the testing services has suggested that we can use the ESOP contribution as a QNEC to pass the ADP test. This does not sound like it should work since the ESOP and the 401(k) are tested separately. Am I missing something? Any comments/insights would be appreciated.
MWeddell Posted March 7, 2003 Posted March 7, 2003 I agree, it doesn't work. A QNEC in an ESOP cannot be used to improve a non-ESOP's 401(k) or 401(m) test. One quasi-exception is that a safe harbor contribution to avoide the 401(k) and 401(m) tests completely may be made in the ESOP.
Kirk Maldonado Posted March 8, 2003 Posted March 8, 2003 MWeddell: What is your authority for the proposition that allocations under an ESOP cannot be taken into account as a QNEC in a Section 401(k) plan that is part of the ESOP? Kirk Maldonado
MWeddell Posted March 10, 2003 Posted March 10, 2003 Kirk, I have no such authority nor do I agree with the proposition. An ESOP must be disaggregated for testing purposes from a non-ESOP. That means that a QNEC to an ESOP can be used to improve an ADP test only if the ADP test is being performed on a 401(k) plan that is part of an ESOP. My prior post is consistent with this view. You might have misread it. -- Michael Weddell
Kirk Maldonado Posted March 10, 2003 Posted March 10, 2003 MWeddell: You are right; I had misread your post. Kirk Maldonado
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