ADP - changing methods

[Dawn Hafner]

From reading Notice 98-1, it states that an employer can make a change in method (from current year method to prior) during the remedial amendment period. I take this to mean I can switch from current to prior during 1998 or during 1999, but if I am on current year for 1999, I am locked in for five years. Is this correct? What about the anti-abuse provision in Section VIII? Does this provision also apply to switching methods during the remedial amendment period? What if a plan used 1997-prior, 1998-current, 1999-prior? Is this acceptable?

[Guest HD WILLIAMS]

Those are great questions. The department I work in is wondering the same thing. If anyone has any information regarding this, please let us know. Thanks!

[Guest KarenW]

Notice 98-1 expand relief for switching throughout the remedial amendment period. 1999 is included in this period, so it's okay to switch methods for 1999 years. If a switch to prior year testing occurs in 1999, watch double-counting limits.

[Dawn Hafner]

Does anyone have any new thoughts on this matter? Is it the general opinion that the anit-abuse provisions in Notice 98-1 won't apply to changes for 1997 and 1998 testing?

Is 1999 then the lock-in year, so that if a plan uses current year method for 1999 they can't switch to prior without a change in method? Are most people using a "best of" then for 1997 and 1998? Thanks for any input.

[MWeddell]

If your plan has passed using either current or prior year testing methods, then you could choose to state that you've been using the current year method throughout the remedial amendment period. You've got way more than 5 years with the current method (which was your only choice pre-97), so that allows you to switch to prior year method.

I think Notice 98-1 clearly allows one to switch from current to prior year method and vice versa during the remedial amendment period, so I don't think the anti-abuse provision is intended to modify that degree of flexibility.

[LCARUSI]

MWEDDELL -

Based on your comments, 1999 would not be the lock-in year for Dawn; 2000 would be.

Do you agree?

[MWeddell]

KarenW started it correctly earlier, that one can still switch freely for the plan year that begins in 1999. The 2000 plan year is the first for which one cannot switch methods freely. However, that means one has to start considering the matter in 1999 because the selection of current or prior year testing method in 1999 will affect what one may select in 2000.

[LCARUSI]

At the risk of belaboring a point...

What are my options with respect to testing in 2000 if I use the current year method in 1999?

What are my options with respect to testing in 2000 if I use the prior year method in 1999?

[Guest ndt123]

It depends...

If you used current year in 1999, and had never used prior year, you can switch to prior year or continue with current year.

If you used current year in in 1999, but used prior year in a previous year, you will need use current year for five years (begining with the first year you used current year. For example, if you used prior in 1997 then current for 1998 and 1999, you would be locked into the current year method through the 2002 plan year.

If you used prior in 1999, you can use either current or prior in 2000.

As always, your document must reflect your method.