SCP - ADP Correction with QNEC

[Leopurrd]

I'm working on allocating a QNEC instead of using the one-to-one method for late excess contribution refunds. The plan uses prior year testing I understand that under EPCRS you have to use the appropriate participant data (so for 2005 failures I need to allocate the QNEC for 2004).

I've ran into a problem - this plan failed in 2005 but this was their first year of testing so they used the "new plan rule" and had a max HCE average of 5%. How do you allocate a QNEC in 2004 for that? Or maybe I need to use one-to-one in this situation since that's the only way I can determine the amount of the QNEC?

Please help! (Tom, I know you and your massive brain are out there somewhere!)

Thanks for any help you can provide!

Vicki

[ETA Consulting LLC]

You're saying that you want to allocate a QNEC instead of a one-to-one. At the same time, you are allocating the QNEC to add to a 'deemed' 3% since this was the first year of testing (and there weren't any real deferrals during the prior year). Also, you want to use SCP (instead of VCP) even though the correction is being made for the plan year that happened 6 years ago.

I would recommend getting the failure identified and vetted against several options (including determining what the result would've been had the current year method been used). I would the proceed to VCP and recommend a correction method to the IRS with the objective of obtaining a compliance letter on this an any other failures.

Good Luck!

[Tom Poje]

I'm overrated again, I'm probably better at song writing ...

I'd agree, 6 years after the fact might be pushing things, depends on whether the whole thing is 'insignificant' vs 'significant'. it would seem to me an ADP failure involves all participants, but no single factor is determinative. I'd say the amount involved could be a big factor.

under EPCRS Appendix A .03 provide QNEC (no otherwise excludeable rule is not allowed). I guess if the HCE avg was 7% and you assume 3% for the NHCEs (first year rule) then I guess you would have to kick the NHCEs up to 5%

appendix B 2.01(b) is the 1-1 correction

......

Vicki had a little plan, little plan, little plan

Vicki had a little plan 'twas causing her great woe

and everywhere that Vicki went, Vicki went, Vicki went

and everywhere that Vicki went she moaned and cried Oh No!

[Leopurrd]

Thanks to you both! I agree 6 years is pushing it but I've been advised that this indeed is "insignficant". Not necessarily my opinion but sometimes I just do as I'm told!

Really my only job was to calculate the QNEC. I will definitely look into this but probably will end up adding to the 1st year results to push them up????? I wish EPCRS had FAQ's on stuff like this!

Tom - thanks so much for the song. It brightened up my weary morning!

Vicki

[ETA Consulting LLC]

I'm overrated again, I'm probably better at song writing ...

Nonsense, Poje is being modest. Heard him speak at ASPPA once, he wrote the book on this stuff. Even Sal Tripodi has to seek Poje's approval to ensure this thinking is correct.

[QNPG]

I'm overrated again, I'm probably better at song writing ...

Nonsense, Poje is being modest. Heard him speak at ASPPA once, he wrote the book on this stuff. Even Sal Tripodi has to seek Poje's approval to ensure this thinking is correct.

I agree with ERISAtoolkit. Tom Poje is always very modest. I have the book that he wrote and LOVE it and use it every day.

Go Tom!