Spinoff 401k

[Guest Serena]

An employer was participating in a PEO plan and decided to de-participate in the plan and create a new plan. Assets in the PEO plan attributable to that employer were spun off into the new plan. Plan has effective date of 1/1/2009 as a new plan, as administrator prefers this method, and it is cleaner from a 5500 perspective as prior year 5500's will not be available for this new sponsor. So we have a successor plan and is also a new plan. However, an issue comes up as to running the ADP test, because as a successor plan you cannot use the deemed 3% rule. Plan document for 2009 had prior year testing elected. Client does not have data from 2008, most likely because the plan was safe harbor in 2008 so the test was not run. So how do you perform ADP test for 2009 plan year if prior year was elected and this is not a new plan because it is a successor plan? It is too late to change the testing method for 2009.

Do 2 tests need to be performed by the new administrator - 2008 in order to run 2009?

Any thoughts would be great!!

[Laura Harrington]

Yes, you need to know what the NHCE % was based on 2008 compensation/contributons in order to perform the 2009 test.