ACP prior year test w/ no prior year match

[Guest tmills]

I need confirmation that under the following set of facts, the ACP test would be run using 0% for the NHCEs and there would be a guaranteed fail for the HCEs

1. prior year testing selected (not a new plan)

2. not amended to switch to current year prior to the end of the current year

3. no match was made in the prior year

If my statement above is not correct, I would appreciate any authority for any other options. Thanks

[J Simmons]

Sounds to me like another example of the law of unintended consequences.

I know of no authority that would drive a different result.

[rcline46]

If ADP passes - shift.

[Blinky the 3-eyed Fish]

If ADP passes - shift.

I am certainly no ADP/ACP testing expert, but to shift matching contributions to the ADP test, doesn't the match have to meet the QMAC requirements? I don't see anything in the OP that would indicate they do.

[justbsur]

Has the plan made a matching contribution at all in the past? If not, then you could make the argument that this is the first plan year for the matching contribution, and use the 3% for the NHCE ACP. IRS Notice 98-1. Otherwise, looks like you're stuck with 0%.

As far as shifting, or borrowing, from ADP to ACP, I think this would be allowable assuming that your ADP test passes.

[BG5150]

If ADP passes - shift.

I am certainly no ADP/ACP testing expert, but to shift matching contributions to the ADP test, doesn't the match have to meet the QMAC requirements? I don't see anything in the OP that would indicate they do.

rcline was talking about going from ADP to ACP, not the other way.

[Blinky the 3-eyed Fish]

So he was. I don't proclaim to know how to read either.

[Bill Presson]

So he was. I don't proclaim to know how to read either.

Might need a contact for that middle eye!

[Tom Poje]

justbsur:

you have to be careful about the match. the actual wording in the notice is as follows:

Section 401(m)(3) provides that rules similar to the rules of section 401(k)(3)(E) shall apply for purposes of the ACP test. For purposes of the ACP test, the "first plan year" of any plan is the first year in which a plan, within the meaning of section 414(l), is or includes a section 401(m) plan (i.e., the first year a plan provides for employee contributions described in section 1.401(m)- 1(f)(6) or matching contributions described in section 1.401(m)- 1(f)(12), or both).

This does not say "the first year the plan provided a match" , but rather "provides for a match". A subtle distinction. Thus if the plan had a match feature but never used it my understanding is you are out of luck. At least, that is what IRS officials have said at different conferences, as far as I can recall. This issue has come up from time to time, so many have read it that its the first year a plan actually makes a match.