ADP Testing Method Amendment ?

[Leopurrd]

I swear I read or heard somewhere that the IRS ruled that a change in ADP/ACP testing method was a discretionary amendment and must be executed prior to the plan year end in which the change is effective....

Can someone tell me if I'm just making this up? Or, if it is in fact true, can you point me in the direction of the regs so I can cite this?

Thanks!

Vicki

[Tom Poje]

I do not know of any hard and fast rule. I believe the IRS has expressed an opinion at the ASPPA conferences that it should be in place, in fact, I think they said even before plan year begins. (I assume you mean prior vs current year testing).

Since a plan can not provide a 'maybe we will go safe harbor SHNEC' without having the plan already be subject to current year testing, there would seem to be some justification for this position.

[rcline46]

Rev Proc 2005-66

[stephen]

Regarding changing from prior year to current year testing in the 2004 ERISA Outline Book (page 11.36)

3. "There is reasonable aregument that the employer could adopt an amendment at any time before the deadline for correcting a violation of the ADP test (i.e. 12 months after the close of the plan year). In other words, the IRS should treat the choice of testing method as one of the corrective techniques in the administrator's "arsenal".

3.a. "2004 Regulations do not address issue/IRS comments indicate narrow rule is contemplated...In the absence of guidance, plan sponsors (or their advisors) will have to decide for themselves what they believe is a reasonable interpretation of the law."

[MWeddell]

rcline46, I'm stumped by your last post. How does Rev. Proc. 2005-66 answer Leopurrd's question about what is the deadline for adopting an amendment to change the ADP testing method from prior year to current year or (if permitted) vice versa?

I think the answer is yes, that this is a discretionary amendment required to be executed by the last day of the plan year, but that's a conclusion I've reached more by inference and omission. I'd love to find official IRS guidance pointing me to this answer.

[R. Butler]

rcline46, I'm stumped by your last post. How does Rev. Proc. 2005-66 answer Leopurrd's question about what is the deadline for adopting an amendment to change the ADP testing method from prior year to current year or (if permitted) vice versa?

I think the answer is yes, that this is a discretionary amendment required to be executed by the last day of the plan year, but that's a conclusion I've reached more by inference and omission. I'd love to find official IRS guidance pointing me to this answer.

rcline gave the correct site. See specifically Rev. Proc. 2005-66 Section 5 .05(3). I asked this specific question at An ALI-ABA video seminar this past November. I believe it was Marjorie Huffman from the IRS that stated the the IRS position is that this is a discretionary amendment & that Rev. Proc. 2005-66 applies.

I don't have time to review the Rev. Proc., but I am pretty sure that you can reach the conclusion that an ADP/ACP change is a discretionary by reading the Rev. Proc. If I remember correctly the Rev. Proc. defines an amendment necessary to correct a disqualifying error; anything not within in the definition is discretionary.

[MWeddell]

Thank you.

[Leopurrd]

Many thanks to all of you for your help!!!

Vicki

[Tom Poje]

before someone asks

http://benefitslink.com/IRS/revproc2005-66.html

[Guest merlin]

From the 2005 ASPPA Conference Q&As:

Q. Based on Revenue Procedure 2005-66, is it the Service's position that any amendment to change a plan's testing method or HCE definition for a particular year must be adopted by the last day of the year?

A. Yes. Under Section 5.05 of the Revenue Procedure, this would constitute a discretionary amendment and must be adopted no later than the last day of the plan year for which the amendment is effective, and perhaps earlier to avoid a 411(d)(6) cutback in accrued benefits. Particularly, the HCE modifications must be carefully analyzed for 411(d)(6) anti-cutback issues.

[stephen]

Thus, I assume Sal has made changes to the section I quoted previously (from 2005) in the 2006 edition of the ERISA Outline Book.

[stephen]

Does this also apply to making the Top Paid Group Election? Once again the ERISA Outline book (2004 edition page 1.202) 2.b.1c) Timing of election says it is ok to make this change as long as it is withing 9 1/2 months after the end of the plan year - the regulatory deadline for making amendments for coverage testing. Or perhaops this is still ok to amend?

Thanks,

Stephen

[rcline46]

Nice try, but is it a voluntary amendment? If it is, the by end of year.