ADP/ACP Testing - Prior vs. Current

[Guest ANNEBV]

Can someone remind me when it is required to choose your testing method for ADP & ACP testing purposes versus being able to use the "better of" current year or prior year numbers?

[MWeddell]

No matter which method you choose to use, it must be in recorded in your plan document by the end of the 2000 plan year.

Until the end of the 2000 plan year (which is the current end of the GUST remedial amendment period), you can freely switch back and forth between the current year and prior and methods. However, whatever you use in the 2000 plan year will restrict what you can elect to use in the 2001 plan year. Thus, even though officially you can keep switching until the end of the 2000 plan year, as a practical matter you can only keep switching freely through the 1999 plan year and when you select what method to use for the 2000 plan year, you need to consider that a more permanent choice.

One other complication: if after the 1998 plan year you switch from the current to prior year methods, that can cause unexpected problems if you using QNECs, QMACs, or shifting elective deferrals from the ADP to the ACP test.

Look at IRS Notice 98-1, Section VII if you want more details.

[This message has been edited by MWeddell (edited 09-15-1999).]

[Guest rhelmreich]

I'm not sure I agree on the ability to switch freely until the end of the remedial amendment period. Although I realize that several significant sources support this proposition, I believe it is an aggressive position.

A plan can certainly make a switch from the current-year method to the prior-year method during the remedial amendment period. See Notice 98-1, Section VII. A plan can also switch back to the current-year method, as there is no restriction on the ability to switch in that direction. However, I think there is a problem with trying to switch from the current-year method to the prior-year method for a SECOND time during the remedial amendment period (before the expiration of the standard five-year waiting period).

The authorization in Notice 98-1, Section VII for a plan to switch from the current-year method to the prior-year method during the remedial amendment period is expressed in the singular context. Notice 98-1, Section VIII also prevent switching back and forth to obtain the highest deferral levels. Until more formal guidence expressly permitting a SECOND switch is released by IRS, I say tread lightly!

[This message has been edited by rhelmreich (edited 12-28-1999).]

[This message has been edited by rhelmreich (edited 12-28-1999).]