ACP Test and Match over plan limit

[Guest george821]

Hi Everyone,

BTW this is my first post! I am fairly new to the business (3 years) and I love it. I am trying to learn as much as possible and it seems like there a lot of very knowledgable (and generous) people on here. Sorry if this has been discussed already, I promise I tried to search first. Anywayyysss...

We have a new client and this is the first year we are performing testing for them. They use the prior year testing method, so I requested a copy of the 07 test. I received it and noticed that the ACP test has percentages over the plan limit. The match formula is 50% of first 6% (so 3% max) and people received up to 3.5%. Does this make test results invalid? I know that when I perform testing, I check for this like this and make sure they get corrected and I use the adjusted number on the actual test. I look forward to your thoughs...

Thank You

George

[Tom Poje]

Hello and welcome and good luck.

as to your question, maybe, maybe not.

the match could be 50% up to 6% deferred of total comp, but for testing purposes, comp might have been (comp - deferrals) or comp from date of entry.

but very observant to notice that some people are at 3.5% (or whatever)

[Jim Chad]

At first glance this looks wrong. But let's talk about how this could be correct.

The first thing that comes to my mind (as little as it is) is that two different definitions of compensation are used: one for allocation of match and a different one for testing. For example was comp used for testing "comp minus deferrals, often called net comp". This can be helpful if some of the HCEs are above the 401(a)(17) comp limit of $225,000 for 2007.

This is all I can come up with. Does anyone else have any ideas?

Oh and if you cannot find a way that it is correct, I do think you need to correct and then test.

[Guest Sieve]

Welcome, George . . .

As suggested, a different definition of testing comp is probably the culprit, but another possibility is that the pre-conversion match may have been discretionary and a fixed match was instituted for 2008--or both may have been discretionary, but a different level of match was announced/provided in 2008.

Correction of the NHCE match for 2007, if necessary, will not impact the 2007 ACP test in a prior-year scenario, but clearly will change the result of ACP testing for 2008, so there will be significant advantages to inquiring/correcting now before performing the 2008 ACP test.

[Guest george821]

Thank You for your input everyone. Turns out there was a problem with the data used for the 2007 test. It will be revised