Shifting - No Match in Prior Year

[KateSmithPA]

I have seen this question posed in prior posts without any responses.

A 401(k) plan uses prior year testing. They have never made matching contributions but their document allows for matching contributions. They decided to start matching in 2007. Obviously, they will fail testing.

Can we use shifting to go back to 2006 and shift some of the NHCs deferrals to match and use that ACP in this year's test?

[Tom Poje]

I think the answer is yes, since the match was an available option never used (as opposed to a newly added feature).

my understanding of the rules is that you can't shift deferrals for those ees who weren't eligible to receive a match (e.g. last day rule or hours requirement - because those people don't exist in the ACP test), but other than that the regs simply seem to say you can use deferrals not used in the ADP test as long as you pass before and after.

[KateSmithPA]

Wonderful!

Thank you, Tom

[401_4_ever]

I know I'm in the minority, but yet another reason why prior year testing sucks and life is just easier with current year testing.

[KateSmithPA]

At the risk of beating a dead horse, my manager asked this question of our document provider and this is the response:

"A 'shifted deferral' is not a matching contribution, it is only an amount that may be taken into account under the ACP test if and when certain conditions are met (and if the plan so provides).

A plan that has the prior-year testing method and for which no deferrals were made for the "prior" year cannot make any matching contributions for HCEs in the year being tested. (Or, to the extent that they are made, you need to correct the test by making corrective contributions for the NHCEs and/or corrective distributions to the HCEs.) "

Any comments?

[Jim Chad]

Katesmithpa

I don't think your situation is the same as the original post.....or did he mean to say no match in the prior year where you said no deferral? Since we are talking about shifting deferrals to the ACP test, there had to be some.

Maybe your document provider's point may have been that you can't use shifting to pass coverage, only to pass the ACP.

At least that is a guess, FWIW.

[KateSmithPA]

I typed his response as received, but I agree, I believe he must have meant match and not deferrals for the prior year.

[Tom Poje]

sure I can always have comments. they might not be correct, but I can still have comments.

1.401(m)-2(a)(3) Determination of ACR

...those amounts determined under the rules of (a)(4) and (a)(5) of this sections AND the QNEC and ELECTIVE CONTRIBUTIONS (emphasis mine) taken into account under (a)(6) of this section.

now (a)(6) says ....elective contributions in the plan year or the applicable year.

and (a)(2)(ii) says if prior year testing is used then the ...applicable year is the plan year immediately preceding the the plan year for which the ACP is being tested.

so it still looks like you may be able to 'shift', regardless of the fact there were no actual matching contributions in the prior year because you are permitted to include elective deferrals in the ACP test.

let's carry the argument that a shifted deferral is not a matching contribution one step further. suppose the plan is using current year testing. would you also hold that you can't shift because 'a shifted deferral is not a matching contribution'?

now someone who is elibile to defer but is not eligible for a match at all is something different - those ees are not on the ACP test so you can't shift them, which means you may need to shift larger amount for the other NHCEs.

or if all but 1 NHCE failed the hours requirement (or last day) and the 1 remaining NHCE didn't defer - then you couldn't shift anything because there is nothing to shift, but other than that, I still would hold you can shift.