Prior Year Testing

[Guest mmc]

A plan using prior year testing failed the 2009 ADP and did not distribute excess contributions in 2010.

What is the correction for 2009 and will it impact the 2010 results?

[fiona1]

It's an operational failure. The plan sponsor can most likely use the Self Correction Program to correct the failure.

The EPCRS outlines 2 corrections methods. There is the QNEC method in Appendix A and the One-to-One method in Appendix B. I would suggest reading through these correction methods in the EPCRS (Revenue Procedure 2008-50).

Both corrections involve the plan sponsor funding a QNEC to the NHCE's.

Will it have any impact on the 2010 test? No.

[BG5150]

But QNEC's have to be done w/in 12 months of plan year end, so option one is out for prior-year tests. I believe just refund/1-to-1 method is the only way to go.

Remember, you cannot omit otherwise excludables when considering the 1-to-1 QNEC. So if you excluded them the first time, you have to re-run with everyone in it, and your refunds will change.

[rcline46]

Under EPCRS QNECs are allowed even if prior year testing, because you are now in a different situation.