New plan adp testing

[pbarrett]

We had an existing PS plan (effective '90) that we restated 1/1/03 and added the 401(k) language. Can I use the 3% rule (average deferral for NHCEs) and let the HCE's put in 5%? Or does this rule only apply to brand new plans?

Thank you for any input.

[rcline46]

The rule applies to the new 401(k) feature, so you may use it for the first year PROVIDING you are using prior year testing!!

If you are using current year testing then you cannot use it.

If you need it the first year, then do prior for the first year and switch to current for second year (if you really want current).

[pbarrett]

Thank you for the quick reply. If I use prior year testing, then when I run the numbers next year, will my adp for the NHCE be 3% again?? That sounds too wonderful.

In other words, if I test this year using the 3% adp for NHCE for the 12/31/03 period, will the 3% again be my number for 2004 year since I'm using prior year? Am I making sense?

[WDIK]

It is my understanding that in the second year of prior year testing, you must use the actual percentages for the NHCE's from year 1, not the assumed 3.00%.

[rcline46]

WDIK is correct, you use the actual from prior year.