ADP/ACP Test Shifting Question

[Lou S.]

I think the answer to my question is no - you can't do what I want but I thought I'd ask anyway.

Plan fails the ADP and ACP test.

The only participant due a refund is catch-up eligible and has not used any catch-up amounts prior to the ADP test for calendar year 2008.

After running the ADP test the HCE needs an excess contribution refund of $3,000, but 100% of the refund is recharacterized as catch-up and no refund is made due or made by the plan.

The plan also fails the ACP test and the HCE needs an excess aggregate contribution refund of $1,000 to correct the ACP testing failure.

However, if 1% of the NHCE, ADP is shifted from the ADP test to the ACP test, the ACP test will pass but the ADP test will now have a larger refund due. Under these facts the HCE would now need refund of exactly $5,000 due to failed ADP after shift. Because the HCE had used no catch-up prior to the test 100% can be recharaterized as catchup.

The Plan document allows for shifting, can this be done?

It seems like gaming the system to me if it can be done but there are what I consider more abusive games (see cross testing and DB/DC combos) that can be played that are perfectly allowable under the code and regs.

[rcline46]

There have been previous threads on this. YOu are FAILING the ADP test, therefore you cannot do any shifting. The requirement is that you pass ADP both before and after the shift.

[Lou S.]

Thanks. I knew I should have used the search function.

[Below Ground]

As a "me too reply", I just faced this same question. I too was pretty sure the answer was "no", researched the issue, a concluded with "no". Even still, I was glad you asked the question.