Bottom Up QNECS

[Guest Jeff Kropp]

I am looking for IRC support for using "bottom up" QNECs to pass the ADP tests. My understanding is that QNEC contributions may be made on an individual basis, beginning with the non-highly compensated individual with the smallest amount of elective deferrals, until the ADP test is passed. Allocating QNECs in this manner would be the least costly method, but may have other implications. Any thoughts or cites are appreciated.

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[Richard Anderson]

Jeff,

The least costly method for bottom up QNECs is not to begin with the individual with the smallest amount of deferrals. The least costly would begin with the person with the least comp. and give them a QNEC up to their 415 limit until the ADP is passed.

Some participants may have terminated very early in the year and have very little comp to apply the QNEC to, so the actual dollar amount for them is low, but for the ADP test, their percentage is 25%.