QNECs

[Gary]

generally the plans i work with pass adp test by means of a safe harbor and i dont use and apply qnecs.

with that said:

say a sponsor implements a 401k profit sharing plan in december 2011.

say there are % NHCEs and one owner

the owner earns 245k and defers 5% or 12,250.

no other employee defers in 2011.

the plan then allocates 3% to each NHCE to meet TH.

the plan is not a 401k safe harbor for 2011 and does not have prior year testing method in plan for 2011.

can the above 3% be a QNEC and thus enable the plan to pass the adp test for 2011?

of course it would thus be like a deferral in that it would be non forfeitable

thanks

[Tom Poje]

Yes, A QNEC can serve double duty

help the ADP test and satisfy top heavy.

If, however, other nonelective contributions are made, then the plan must staisfy a(4) testing with and without the QNEC.

(e.g. if the plan is cross tested, you have to test with and without the QNEC)

[Gary]

thanks tom

and if it is passing by means of combined db/dc plan then i presume it has to pass with and without qnec.

the qnec can also be applied to meeting the gateway too?

of course excluding 3% qnec can make it more difficult to pass tests; i.e it can fall below 70% abt or even cause a NHCE to have his accrual rate fall below the HCE.

thanks

[Tom Poje]

well, its a moot point if you can apply the QNEC toward the gateway, beacuse you have to test without it, so far all itents and purposes no a QNEC can't count toward the gateway.

it can only do double duty - top heavy and ADP/ACP help.

A SHNEC can do extra duty, but you said it wasn't safe harbor so that doesn't pertain to this topic.