Matching Contribution for 6/30 PYE not yet made. We know ACP test will fail. Match will be paid after September 15, 2005. Suggestions welcome on how to treat?

[Guest ChopperPilot]

The Matching Contribution for 6/30 PYE 401k plan will be made after the 2 1/2 month penalty-free correction period which is September 15th. We know the ACP test will fail.

Other than processing the ADP corrections in time, how best to advise a client on how to proceed? They deposited a 2% match last year and that test failed also. Correction refunds were made after the 2 1/2 month dealine and the client was pissed they had to pay the 10% penalty. This was one reason they fired their prior TPA. We just took over TPA services July 1, 2005. Thanx.

[Tom Poje]

since match is small (you indicated match is at 2%) the avg for the NHCEs would be less than 2%.

I'd be surprised if 'shifting' didn't help.(or eliminate a failed ACP test)

for example, suppose after corrections for failed ADP test you are left with the following:

ADP ACP

HCE 5 2

NHCE 3 .5

shifting 1% would result in

4 3

2 1.5

and at that point you pass.

some argue you can't shift after making corrections to the ADP test. I hold you are able to do so. ERISA Outline book presents arguments either way.