billfgrady Posted March 2, 2004 Posted March 2, 2004 If a 401(k) Profit Sharing Plan has one NHCE who defers 0 in 2004 and then terminates in 2004, how do you handle the ADP testing for 2005? Given that the NHCE ADP is 0%, does this mean that the HCEs can't defer anything in 2005? Obviously, the HCEs could just get profit sharing contributions, which would satisfy this problem. But there are certain HCEs who do not want to contribute the 402(g) limit because it comes out of their pockets. So, we're stuck with elective deferrals. How do you make a QNEC when there are no NHCEs in the plan for the 2005 plan year?
R. Butler Posted March 2, 2004 Posted March 2, 2004 Would you be deemed to pass in 2005 because no NHCE's are eligbile? See IRS Reg. 1.401(k)-1(b)(2)(i).
Mike Preston Posted March 2, 2004 Posted March 2, 2004 I think the IRS has stated in one of the ASPA Q&A's that you do, indeed, get a free pass in any year where there aren't NHCE's. However, that is just informal advice. If your reading of the cited regulation doesn't provide enough comfort, couldn't you switch testing to current year?
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