ADP/ACP Testing - Prior Vs Current

[Guest Dennis]

Question regarding preparing ADP/ACP testing and utilizing the current and prior year alternatives. I had been preparing ADP/ACP tests using the prior year and current year elections mixed for the ADP/ACP test. For example, I may use 1998 %'s for ADP and 1997 %'s for ACP. At a recent seminar, it was noted that the above procedures were not recommended. The individuals attending didn't have notes on certain citations or reasons to indicate there were issues with preparing tests in the first example.

Can anyone help to cofirm the statements that testing the ADP/ACP with different years is not appropriate. Thanks!!!!!

[david shipp]

This may or may not be the issue, but in a prototype environment, the LRMs indicate that ADP and ACP testing must be performed on the same basis.

[Guest T Hoffman]

I have heard speakers (non-IRS) answer both ways on this. Notice 98-1 says a "plan" must specify which of the two methods it is using. Section II.C. of Notice 98-1 says that the term "plan" as used in the notice means a plan as defined in Sec. 1.401(a)-1(g)(11). 1.401(a)-1(g)(11) says you start with 1.410(B)-7 concept of a "plan" but without the 1.410(B)-7©(1) mandatory disaggregation rules for (k) and (m) plans. For most 401(k) plans, doesn't this mean that there is only one plan and that (k) and (m) contributions have to be tested on the same basis?