Does that mean that one would not pass it even if one runs the ACP or ADP test?

[Guest Enda80]

Safe Harbor Question; they say one stands as deemed to have met ACP or ADP test does not meet that one would actually pass it, right? If one calculated it out, the plan would not pass the ACP or ADP test, but following the safe harbor provisions gets one a reprieve?

[J Simmons]

Safe harbor means you don't have to pass the ADP and ACP tests that would apply but for the safe harbor applying. So the ADP and ACP numbers would not necessarily have to fail for the safe harbor to apply. If the plan is not safe harbored, then the plan needs to pass the ADP and ACP tests.

[BG5150]

Here is an example:

2 HCE's each put in 10% of pay

5 NHCE's each put in 2% of pay

HCE ADP = 10%, NHCE ADP = 2%; test fails.

Employer makes a 3% NEC to only NHCE's.

HCE ADP = 10%; NHCE ADP = 5%; test still fails.

However, if the NEC satisfied the Safe Harbor requirements (100% vesting, notice timing, etc), then the plan is deemed to have passed the ADP test, even without looking at the numbers.

[Guest Sieve]

BG -- You do not have a SH plan simply by making a QNEC after year-end to correct a failed ADP test (as it seems you are suggesting). A SH plan must give proper notice prior to the beginning of the plan year, and the SH provisions must be in place and generally apply for the full year (except that they need only apply for the last 3 months of the plan year for a PSP which is amended to add 401(k) provisions). Making a SH-type QNEC (fully vested, etc.) after year-end will not do it.

[BG5150]

BG -- You do not have a SH plan simply by making a QNEC after year-end to correct a failed ADP test (as it seems you are suggesting). A SH plan must give proper notice prior to the beginning of the plan year, and the SH provisions must be in place and generally apply for the full year (except that they need only apply for the last 3 months of the plan year for a PSP which is amended to add 401(k) provisions). Making a SH-type QNEC (fully vested, etc.) after year-end will not do it.

Sorry that I didn not make myself clearer. I assumed this plan had a "Safe Harbor" feature to begin with. I know an employer can't just do a 3% QNEC after the fact and say the plan passes the ADP test because the contribution was "safe harbor." (I did put "(100% vesting, notice timing, etc)" in there; I guess it wasn't evident what I meant.)

My point was to show that a 3% NEC that satisfied the safe harbor conditions might not in and of itself correct an ADP test (much the way a QNEC might).