APD Excess and Spin Off

[DTH]

I have a portion of Plan A that spun off mid-2004 to an unrealted employer. Employee's assets were transferred to the new Plan B. The Plan A did not do the 2003 ADP test before the spin off. Plan A failed the 2003 test and there was one HCE in that group whose assets were transferred to Plan B in 2004.

How does the HCE's ADP excess from Plan A get corrected? Does the Plan A plan adminstrator request the plan adminsitrator from Plan B to do the distribution OR is Plan A stuck with doing a QNEC to correct?

Thanks!

[Guest jhinkle]

DTH,

Just curious if you found an answer to your original question on this issue.

Short of any clear obligation on Plan B's part to correct, is the correction procedure something the two plans / trustees could agree to in some binding manner prior to the spinoff?

[DTH]

We concluded that there are two methods to correct this scenario:

1. The plan sponsor of Plan A corrects via a QNEC. The Plan A will need to transfer the QNEC dollars to Plan B for those affected NHECs who participated in Plan A and were transferred to Plan B.

2. Request Plan B to transfer the ADP excess and interest back to Plan A. Plan A will distribute and tax report the APD excess.

Moral of the story ... make sure that nondiscrimination testing and corrective distributions are done before the transfer (same goes for minimum requried distributions).