ADP

[Guest elang]

Plan was established 1/1/2009 and written as using prior year testing. Originally, the only employees were the 2 owners (husband & wife) and they have each been making max 401(k) deferrals each year. In 2011, they had their first eligible NHCE employees, none of whom deferred anything in 2011. For 2011 testing (the prior year being 2010 w/ no NHCE's), how much can the owners defer in 2011, if anything at all?

[Tom Poje]

but start planning now. for 2012 the prior year NHCE is 0

if using prior year testing, any QNEC would be due 12/31/2012, whcih of course is generally before you know the numbers. but you know what he HCEs are deferring, and you know what the 2011 comp is for the NHCEs so you could put in a QNEC for the (HCE avg-2) or whatever at this point in time.

or amend to current year testing and then wait and see how thing work out.

you did not indicate it, but it sounds like the plan will be top heavy, and so you could put the top heavy in the form of a QNEC (assuming only non keys receives the top heavy) and then you would be covered.

[Guest elang]

Will there be a top-heavy requirement for 2011?

[Tom Poje]

as of 12/31/2010 the only people with balances were the owners, so for plan year 2011 the plan is 100% top heavy.

ugly surprise.

and I would assume as of 12/31/2011 the key people probably have more than 60% of the assets so the plan would be top heavy for 2012 as well.

as noted prior, plan will fail ADP test in 2012. but a QNEC could be made now and it would cover top heavy (double duty) - assuming keys are excluded from top heavy things might not be that bad.

lots going on in a brief space of time. tread the waters carefully.

[Guest elang]

Thanks, I appreciate your help.