Plan fails ADP test, but no refunds

[BG5150]

I often get plans that fail the ADP test, but there are no refunds because of catch-ups.

If this happens to one of your plans, to you tell the ER the test fails but there is no refund? Or do you just say the plan passes?

[Mike Preston]

Passes. If we want to be verbose, we say "Passes due to catch-ups."

[BG5150]

Passes. If we want to be verbose, we say "Passes due to catch-ups."

How does the plan pass then?

Basically, you are taking what would have been refunds in a failing test and calling them something else (catch-ups).

If you had an ACP test that failed, but the match to be refunded was forfeited instead, would you say the ACP test passes?

[pmacduff]

FWIW - I tell the client that the test failed but the excess was recharacterized as catchup contribution and therefore no refunds are necessary. Most of my clients that fail have been failing for years, so are REALLY happy when the excess can be recharaterized.

[Mike Preston]

It depends on what question is being asked: Does the plan pass the ADP test? or Is the plan required to issue refunds. In most circumstances, the client cares about the latter. The former is of passing interest vis-a-vis trends and planning for the future.

[Below Ground]

I send a client a report showing testing details. Those details include "contribution cutbacks" resolved by Catchup, and those resolved by remedial distribution. My summary to the client simply tells them whether distributions are needed. That way, the typical client can say "Oh, no action needed", or "Darn, I have to do...". The special client that wants analysis is also satisfied by looking at the detail. In summary, give them what they want, but make sure compliance is realized.

[austin3515]

We say the testing passed and just keep it simple. Most of our clients wouldn't understand even if they read the year-end letter. If I'm at a meeting, or talking about plan design, or otherwsie involved in a converation on the subject, it would come up. But in my report I just say it passed.

This is what I have heard referred to as the KISS policy - Keep It Simple, Stupid