Shifting QMACs of HCEs to ADP

[Jeff Kirtner]

Plan uses prior year testing. Plan is passing ADP but failing ACP. Plan can pass ACP if it shifts some HCE matching contributions satisfying the definition of QMACs (i.e., 100% vested, subject to distribution restrictions), to the ADP test. Normally, the shift of QMACs is made to correct ADP problems, but here the shift would be used to fix ACP problems. Is that a problem? Is it a problem shifting only HCE QMACs? The regs (specifically 1.401(k)-1(b)(5)), appear to allow shifting HCE QMACs into the ADP test for any reason, without needing to pass any nondiscrimination requirements. I would appreciate any insights you can give me on shifting HCE QMACs to the ADP to correct ACP problems.

[Blinky the 3-eyed Fish]

I am no expert, but I thought that the source you were shifting from had to pass testing both before and after the shift. You don't meet that criteria by shifting from the match to pass ACP testing.

[Jeff Kirtner]

When you make QNECs, all non-elective contributions (including the QNECs), and the non-elective contributions excluding the QNECs, must each pass 401(a)(4) separately. I see no similar rule applying to QMACs, and do not find any rule requiring the ACP to be passed before shifting is allowed. Do you have a cite? Anyone else?

[Blinky the 3-eyed Fish]

I told you I was no expert and I determined I had it incorrect after looking it up. The need to pass testing both before and after the shift applies to deferrals shifted to the ACP (1.401(m)-1(b)(5)(iii), not QMAC's shifted to ADP. Your solution to shift the QMAC's to pass the testing is valid.

[Tom Poje]

What am I missing?

It was indicated the plan passes ADP and fails ACP.

so I will use the example from the regs

HCE 10 10

NHCE 10 6

instead of shifting (making QMAC) for HCEs why don't you simply shift NHCE deferrals?

HCE 10 10

NHCE 8 8

or

HCE 0 20

NHCE 0 16

That is straight from the example in the regs.