"Shifting" %'s in ADP/ACP Test

[Guest LOhmer]

A 401k used some elective deferrals to pass the 1997 ACP test. The '97 ADP/ACP test was completed on current yr data. Now for the '98 ADP test, the plan would like to test on prior data. Is the NHCE ADP% before the "shift" of the elective deferrals to ACP used? Or is the NHCE ADP % after the "shift" of elective deferrals to ACP used?

Reading Notice 98-1 it leads ms to believe that I should use the after shift NHCE ADP %.

Any help would be appreciated.

[Guest Beavis]

I am in agreement with your reading of 98-1. You should use the after-shift NHCE number for your 1998 ADP.

Unfortunately, you have to use the before shift NHCE number for your 1998 ACP.

Go figure.

[Guest ndt123]

You may use the post-shifted ACP percentage for 1998 - there is a transitional rule in notice 98-1 for 1997 and 1998 years.

[Guest RGlaser]

We have had debate here about this. Can somebody confirm the conclusions in the following scenarios? These all relate to the transition year, for years starting after 12/31/98 when changing from current year data to prior year. Also, except for these Q&A, has anybody run this by the drafters of 98-1, since it doesn't seem to make sense?

Assume 2000 used current year data; 2001 uses prior year data.

1.Year 2000 NHCE ADP (pre-shift) = 3.00

Year 2000 NHCE ACP (pre-shift) = 1.00

Year 2000 NHCE ADP (post-shift) = 2.80

Year 2000 NHCE ACP (post-shift) = 1.20

So, for 2001, the NHCE ADP would be 2.80 and the ACP would be 1.00.

2.Year 2000 NHCE ADP (pre-QNEC) = 2.00

Year 2000 NHCE ADP (post-QNEC) = 3.00

(QNECs were made only to satisfy ADP)

So, for 2001, the NHCE ADP would be 2.00.

Thanks for any help.