ACP results if no prior year ACP Test

[Guest Dennis]

I think the question is best asked with an example. 1995 and 1996 there was a matching contribution and an ACP test performed. For the 1997 plan year, matching contributions were not made, t hus no ACP test performed. For 1998, a match was made and the ACP test performed. The 1998 ADP test is failing and would pass using prior year %'s. (Please note the plan is on a prototype document that prohibits us from mixing prior and current results for ADP/ACP testing).

From reading notices issued by the IRS, if an ACP test had never been performed, I could rely on the 3% default for the year. However, there has been ACP tests in prior years. Do you agree that the 3% default is not available?

Can I use prior year ADP and use current year ACP since there arent' ACP results available from the prior year?

Is there any recent guidance issued by the IRS regarding the above issue.

Thanks

[Guest T Hoffman]

First plan year rule is not available if your plan contained discretionary matching contribution provisions in a prior year, even if no matching contribtion has ever been made. Section V of Notice 98-52 defines "first plan year" as the first year in which a plan provides for matching contributions. Also, I do not think the (k) and (m) portions of the same plan can "mix" methods. It sounds like this means that you are stuck with using the current year method for ADP AND ACP if you want to resume making matching contributions.