Failed ADP with late Refund

[pixmax]

A client failed ADP testing in 2007 and never processed the refund. Under a self correction, couldn't they distribute the refund with earnings, provide a QNEC to NHCE's in the amount of the refund allocated pro rata on comp and then file Form 5330 for the late refund?

Any guidance would be great.

Thanks

[BG5150]

I think that is correct.

EPCRS allows for the QNEC to go to any of these 4 groups:

1) all the NHCE's in the test

2) all NHCE's in the test still employed on correction date

3) all the NHCE's in the test who are still NHCE's for the year of correction

4) all the NHCE's in the test who are still NHCE's for the year of correction and who are still employed on correction date

Also, you may not break down the test into component plans; everyone must be tested together. That may change the refund amounts.

[pixmax]

Can I just do a QNEC to get the test to pass so that no refunds will be due? I didn't know if you could do this after the 12 month period. Would I need a 5330?

Thanks again.

[BG5150]

After 12 months, the "regular" QNEC is not an option. You need 5330 for late refunds.

Correction method can be found in EPCRS:

http://benefitslink.com/IRS/revproc2008-50.pdf

[Tom Poje]

Appendix A of self correction (.03) says you can make a QNEC, but you can't test otherwise excludables separately.

has to be the same % to all (no semi-bottom ups QNECs, no 'by equal dollar')

usually that is more expensive than the 1-1 distribution and QNEC as described in Appendix B