ADP now, ACP later

[fiona1]

If a match for the 2003 plan year isn't going to be made until May of 2004, is there anything wrong with doing an ADP test now and then doing the ACP test after the match comes in? What are possible consequences of doing this? Thanks a lot.

[Tom Poje]

do you mean actually deposited? Deposit date is generally unimportant unless it is a year after the plan year end. If you mean match is discretionary and they haven't decided on whether to make one or how much, well, I guess it still doesn't natter - basically there is no reason you can't run the ADP test at this point in time, in fact, I would say it is certainly advisable to get it done as soon as you can.

Now, if the test fails, that may effect what you do with the match. e.g. if plan allows for QMACs then the match may effect amount of refund etc...

[g8r]

You may also be limiting your correction options. The 401(m) regs specifically provide that NOT making a match is an impermissible correction method. So, should you run the ACP test in May and fail, you are beyond 2 1/2 months (assuming it's a calendar year plan) and you'd either have to make an additional contribution for the NHCEs to pass or refund vested matches to the HCEs and pay the 10% excise tax. The key is that the excise tax applies if you correct by making distributions after 2 1/2 months.