Dividend Deductions and ADP/ACP Testing

[Guest sandersiii]

Ok, We have a 401k plan w/ ER Securities and mutual funds wanting to convert to an ESOP or at least the employer securities portion would convert. How do you go about breaking down the compensation for testing between the 401k plan and the ESOP for purposes of doing the ADP/ACP tests that would be done separately?

For instance if you have $8000 in deferrals going into the 401k mutual funds and you have $4000 in deferrals going into the employer stock with a total of $100,000 in compensation, What do you use for compensation in each test?

Thanks in advance!

[QDROphile]

Wait until the proposed 401(k) regulations are effective so you don't have to disaggregate.

Here's a hint for an elegant solution that works until the regulations remove the question. Ask yourself what an ESOP really is instead of believing what the IRS has been snowed into believing. A real real ESOP will have contributions. A real ESOP is not an investment choice. That is not the position you are taking for purposes of gettig those lovely dividend deductions, so the principled reality the may be a bit hard to see.

[Guest sandersiii]

Thanks QDROphile.

I wish we could wait but they're putting this in for this coming year. Does anyone have an idea on this????

[QDROphile]

You don't take hints? Try searching for another thread on this topic. For such spohisticated information you either have to work for it or pay for it.

[Guest sandersiii]

Thanks QDROphile,

I searched the threads before posting and didn't see anything specifically as to how to break out the compensation. We don't have an option on this, the accounting firm and corporation are moving forward and want an answer to this particular question. We're also willing to pay for good advice!

[QDROphile]

Go to the topic on this board entitlted "Convert 401(k) to ESOP to get 404(k) Deduction." Look in reverse order to concentrate on your issue because it develops late in the comments.

As they ask on TV, now how much would you pay?

The best policy is to have the plan document explain exactly how it will conduct the ADP test and get a determination letter.