1999 ADP/ACP TESTING

[Guest CGBS]

Am I correct? If I want to split my test (for those who have less than one year service and are not age 21), I still MUST include in the one test I do all HCE'S even if they did not meet the age and service requirements. I thought I had it - but Datair support disagrees. Thanks alot.

[Alf]

You are correct.

In order to disregard non-highly compensated employees eligible to participate before they have completed one year of service and reach age 21 for purposes of the ADP and ACP tests the following requirements must both be met:

1) the plan must satisfy minimum coverage rules taking into account only the employees who have not completed one year of service and are under the age of 21; and

2) the plan must satisfy a single ADP test comparing the actual contribution percentage for all highly compensated employees to the actual contribution percentage for non-highly compensated employees who are eligible to participate and who have completed one year of service and reached age 21.

Therefore, the ADP test considers contributions by ALL highly compensated employees.

[Guest]

if I understand your question, I aggree with Datair.

prior to SPJBA, you could perform 2 tests, those with 1 yr/age 21 and those with less than 1 yr/age 21.

the new regs did not do away with that (as far as I know and have read), however they did add a new option:

all HCEs are treated as having 1 yr plus no matter if they only worked but one day.

this option, in effect, eliminated the need to perform the test on ees with less than one year since there are no HCEs in that group.

[Guest CGBS]

Thanks - In the 2000 401 (k) Answer Book - It said there were changes after the 1998 plan years (test all HCE'S in one group). I interpreted that to mean the "old" way of 2 tests was GONE for testing as of 12/31/99 and beyond. Tom - you're saying that they have ADDED an option and not taken away one?

I really appreciate your thoughts.

[MWeddell]

Tom Poje is right. There's the old method of testing separately those <21 & <1 and the new statutory method of ignoring NHCEs <21 & <1. I recall the IRS believes that one can't use an entry date assumption under the new statutory method but still can under the old regulatory method.