Off plan year ADP testing

[Guest KRS401k]

In the case of an off plan year, what compensation is used for ADP testing? Plan year or calendar year?

[austin3515]

Under 414(s), it can be either the plan year or the calendar year ending within the plan year. Although there does not appear to be a restriction on going back and forth, I would recommend applying it consistently because of the 401k regs that talk about the anti-abuse provisions (i.e., flip-flopping on testing methods for the sole purpose of skewing the testing results). The preamble to those regs apparetnly states that they're not talking about run of the mill stuff (net comp, otherwise excludables, etc), but to me, this seems to be agressive to flip-flop between these two, especially depending on the plan year end, since it could be tantamount to switching between CY and PY testing (for example, if the Plan has an 11/30 year end, and you decide to use the prior 12/31 data--perhaps because a terminated participant deferred 50% of pay in that period!).

[BG5150]

Check the plan document. There's usually an election to use/not use the calendar year election in there near where it's decided if the top paid group is used.

[austin3515]

BG150, you';re thinking of the calendar year data election, which relates to HCE determination. What I was referring to is different than that.

But of course, not every document gives a lot of flexibility in choosing testing comp, although most prototypes do (at least I know ours does).

Oh, also, this election relates to cOMPENSATION, not deferrals. So even if you elect to use calednar year comp, you still use plan year 401k. Not sure how that would work operationally, but that's the deal...

[BG5150]

Good point. I was having a "bad post reading" day yesterday.