Mid Year Non-discrimination Testing

[Guest JBDixon]

Since ADP and ACP for eligible highly compensated employees for the current plan year may be determined by reference to the ADP and ACP for eligible nonhighly compensated employees for the preceeding year, is there a valid reason to do mid-year testing?

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[Tom Poje]

perhaps. If the NHCEs deferral % has increased dramatically over last year, you might have a good reason for switching to current year [especially if you were really limiting the HCEs in the current year.](as much as I prefer to use prior year)

but for the most part, if you are going to use prior testing, there seems to be little reason to do a mid year test. save time and expense!

[Fredman]

What if the NHCEs deferral % decreases dramatically over the last year? If mid-year testing is not done and this isn't discovered until after the test is completed at year end, the only solution would be to decrease the HCE for the coming plan year.

I agree that mid-year testing has lost some importance, but some type of "check" of the NHCE rate is still a good idea.