QNEC Considered NEC?

[Dougsbpc]

Administer a small cross-tested 401(k) plan that has depended on QNECs to pass ADP test in prior years. Next year they will not need QNECs to pass ADP test. However, the employees now count on getting a 3% of pay 100% vested contribution on top of the 5% Nonelective contribution subject to a vesting schedule.

Question: can they make a QNEC anyway even if they already pass the ADP test? Does the QNEC simply become an additional Nonelective contribution that just happens to be 100% vested? If so, I would think we could use the QNEC in the a4 test and not have to pass a4 without it.

We suggested the employer simplify matters and just make an 8% of pay Nonelective contribution but they just cant face the wrath of the employees who have gotten used to the 100% vested contributions.

[Tom Poje]

does the document say 'A QNEC will only be given for a failed test"

I doubt it.

does the document say "A QNEC will only be given up to the amount needed to pass testing'

Again, I doubt it unless you have failed your test by exactly 3% every year - otherwise you have done things incorrectly in the past.

Therefore, you probably don't have a problem allocating it.