ADP Testing - plan uses prior yr testing method

[doombuggy]

I completed the 2004 annual val for a small plan that uses the prior year testing method. We told the administrator that the sole HCE will need to keep his deferral percentage at 4.71% or less in order to pass the test for 2005. Apparently, he has already contributed that much. We have told them to stop, but is there any way that he can take a correction now, in the 2005 year, or would he have to wait? I feel that it's too late, and I can't find anything in the Erisa Outline book that says he could take a refund now.

Any thoughts? Thanks!

[MWeddell]

It's in the ERISA Outline Book in Chapter 11, Section VIII, Part F.

The corrective distribution must be made after the end of the plan year. The HCE will have to wait before taking a corrective distribution.

[Leopurrd]

Don't forget that if the HCE is 50 or older in 2005 he can recharacterize some of his ADP failure as catch up.

You could also see if the current year method would help him pass - you can always switch from prior to current, but you must use the current year method for 5 years before switching back to prior. It's a tradeoff in admin but may make the client happy???