ADP test for first year that NHCEs are in Plan

[Lynn Campbell]

How does ADP testing work when a 401(k) Plan in which all EEs are HCEs has 2 NHCEs join the Plan as of 4/1/99? This is a calendar year plan. Is 1999 automatically OK due to no NHCEs in 1998? and then 2000 depends on NHCEs deferrals in 1999? Thanks for input.

[MWeddell]

If the plan document (as amended by the end of the 1999 plan year) says that you're using the prior year testing method, what you've proposed is a reasonable interpretation of the guidance the IRS has given us in my opinion. Even better: you could test those employees who otherwise would be excludable under IRC 410(a) separately when computing the 1999 average percentages, resulting in no NHCEs in the 21+ / 1+ group, so there won't be any restriction on how much the HCEs defer until the year 2001.

[Guest T Hoffman]

Although this may deserve another thread, I will try it here since Weddell mentioned the 401(k)(3)(F) 401(m)(5)© early participation rules. Notice 98-52 designated these as disqualifying provisions (didn't it?) and stated that the GUST remedial amendment period applies to amendments reflecting the use of the early participation rules. I assume this means that these rules have to be in a plan document before they can be used. Anybody know if there is authority for this plan document requirement? Can it be discretionary? Thanks.