QNEC

[Logan401]

A client has failed their ADP testing, and will most likely make a QNEC to satisfy the testing.

They also make a year-end profit share, using the Integrated method.

Can the QNEC be used as part of the Integrated profit share?

I know it can be used to satisfy the gateway for New Comparability profit sharing, but wasn't sure about using it for an Integrated profit share.

[BG5150]

A client has failed their ADP testing, and will most likely make a QNEC to satisfy the testing.

They also make a year-end profit share, using the Integrated method.

Can the QNEC be used as part of the Integrated profit share?

I know it can be used to satisfy the gateway for New Comparability profit sharing, but wasn't sure about using it for an Integrated profit share.

I would say no, because the QNEC must be 100% vested and subject tot he same withdrawal rules as elective deferrals.

[Logan401]

I am also thinking "NO" because of 401(a)(4):

Rules say that:

The plan must provide that

such contributions will be treated as elective contributions

only if the additional requirements described below and

specified in section 1.401(k)-1(b)(5) of the regulations are

satisfied.

1. The non-elective contributions, including QNECs

treated as elective contributions, satisfy section 401(a)(4).

2. The non-elective contributions, excluding QNECs

treated as elective contributions for the ADP test and

QNECs treated as matching contributions for the ACP test,

satisfy section 401(a)(4).

When you back the QNECs out from the 401(a)(4) test, the allocation no longer meets the safe harbor formula for an Integrated PS, and would be discriminatory.

Am I on the right track?