QNEC and Carve Out Method

[CJS07]

We used the Carve Out Method to run the ADP test which eliminated the

"otherwise excludable" employees from the test. The ADP % for the 15 NHCE's

(the main NHCE group that was not carved out) was 4.14% (there were 4 ee's

who were carved out)(Total NHCE's were 19)

Question

---------------------

When using the QNEC correction method, does the excludable employee group

need to be taken into account in determining the new NHCE % after the QNEC

is made? (ie does the test have to be re-run without using the carve out

method and use that ADP% which will be even lower to base the QNEC

correction on?) 2. If we can base the correction on the ADP test which only

included the 15 ee's, does the QNEC correction need to take into account the

"otherwise excludable" ee's?

[MWeddell]

There is no requirement that prevents you from allocating QNECs to just the NHCEs covered by the test for the otherwise excludable employees. However, you will have to follow the QNEC allocation formula that is in your written plan document, and often it will not exclude the carved out employees from the QNEC allocation.

[BG5150]

Just a side note on QNEC's: If you are doing a 1-to-1 QNEC for plans that are being corrected more than 12 mos after the testing year ends, you cannot break the population into component plans.