ADP - Additional failures

[Guest andmik]

Hello,

Hoping for some feedback.

Client performed ADP testing for PY2007 (calendar year) and due to a failed testing result, made corrective distributions before March 15, 2008. Late in 2008 client discovered an error in the testing information which when corrected resulted in the need for additional corrective distribution to certain HCEs.

The correction was not actually distributed until January 2009.

Had the correction been made in late 2008, the corrective distributions and the applicable Excise Tax under Form 5330 would have been the only steps to be taken.

However, given that it took until early 2009, under EPCRS, it looks like a test not ever completed would require a one-to-one QNEC as well for the amount that was not timely distributed by end of 2008.

Does anyone see a potential argument in favor of not needing to make the one-to-one QNECs as part of this additional correction due to the test originally being completed in good faith and corrected in early 2008 and the later amounts that needed to be corrected due to the participant information error could be viewed as an Operational Error, rather than a testing error at that point?

Thanks for any insight.

Andmik

[rcline46]

Dont forget that you can also correct under EPCRS Appendix A which is a QNEC - in this case enough to eliminate the additional giveback, in my opinion, is all that is needed and may be less expensive than the one to one.

I think you are still under the failed ADP test rules.

[Guest Sieve]

Remember, the EPCRS corrections in Rev. Proc. 2008-50 are not mandatory. The IRS will consider any suggested correction that you make, taking into account the correction principles in Section 6.

I would not self-correct using your suggested correction method, but I see little downside (other than the continuing accrual of interest) in trying to push such a correction procedure through under VCP.

Frnakly, though, I doubt that the IRS would agree to your correction because it will take assets from the Plan.