ADP/ACP test

[Guest Rick Butler]

Is anyone familiar with using "shifting" to pass the ADP/ACP tests? Has the IRS or DOL issued anything explaining exactly how the technique should work?

[Guest]

step 1, check your document. it should clearly state under definition of ACP % what contributions may be used...e.g. 'elective deferrals' blah, blah, blah.

If your current document does not allow this, i would certainly incorporate it at restatement time.

you can not use current year testing for ADP and prior year testing for ACP, or vice versa - must use same year testing.

if match is shifted to deferral, it must be treated as a QMAC (document must allow) and therefore it is traeted as 100% vested.

my understanding, the shift is a 'paper' shift only. in other words, you don't physically move the money to an account called 'match' if you are moving deferrals.

two conditions must be met to use deferrals in the ACP test.

1. adp test must pass the two test before the shift.

2. the adp test must pass the two test after the shift.

you do not have to shift equal amounts for HCEs and NHCEs, you could shift all the deferral to the ACP test if you wanted.

see 1.401(m) - 1(d) example 3 (iii) for that example

the best shift possible would be either

everything (if deferral and match are real small this would work)

or

reduce the HCE deferral to 4 and the NHCE deferral to 2.

This gives you the maximum use of the 2 test without any waste.

be careful if QNECs are involved, there are special rules.

(If you use Quantech, I have a report that does perform the shift - of course I can't 100% guarantee the results - one should always double check the numbers. sorry, website is currently down)