Match Reinstatement - What to do with ACP Testing???

[heygents]

A plan sponsor decided to reinstate their company match in 2013 after a period of a few years without the company match. Today the plan sponsor asked me to run the non discrimination testing to see if the HCE's were projected to have any excess contributions. Since the plan document currently states to use prior year NHCE ADP/ACP values the ACP test fails because the NHCE for 2012 was 0 since there was no match. Because of this, all the HCE's would need to receive a corrective distribution. Are there any special rules about ACP testing when a match is reinstated that would allow the HCE's to receive a match for the year?

Thanks

[ETA Consulting LLC]

They will receive it, but it just will not remain in the plan. You can look at amending to use a current year testing.

Good Luck!

[Tom Poje]

changing testing methods is a discretionary decision. some would argue, therefore, since 2013 is not completed, it is not to late to amend the plan to current year testing.

I don't believe the IRS has stated you can't.

[Kevin C]

I think the current published guidance on timing for discretionary amendments is in Rev. Proc. 2007-44, Section 5.05-5.07.

.05 Except as otherwise provided in section 5.06 and 5.07, the deadline for the timely adoption of an amendment with respect to any plan is determined as follows:

(1) In the case of an interim amendment, an employer (or a sponsor or a practitioner, if applicable) will be considered to have timely adopted the amendment if the plan amendment is adopted by the end of the remedial amendment period described in section 2.05 (determined without regard to the extension under section 5.03 of this revenue procedure).

(2) In the case of a discretionary amendment (i.e., one which is not an interim amendment described in section 5.02), an employer (or a sponsor or a practitioner, if applicable) will be considered to have timely adopted the amendment, if the plan amendment is adopted by the end of the plan year in which the plan amendment is effective.

.06 Special deadlines for governmental and tax exempt employers

(1) Governmental Plans Within the Meaning of § 414(d) of the Code. The adoption deadline for interim amendments or discretionary amendments is: the later of (a) the deadline that would apply under the regular applicable rules of section 5.05(1) and (2), or (b) the last day of the next regular legislative session beginning after the amendment's effective date in which the governing body with authority to amend the plan can consider a plan amendment under the laws and procedures applicable to the governing body's deliberations.

(2) Tax Exempt Employers. In the case of a tax exempt employer, the adoption deadline for interim amendments is set forth in section 2.05 as modified in this section 5.06(2). For purposes of determining the tax filing deadline, the following is substituted for the language under section 2.05(1) describing the due date (including extensions) for filing the income tax return for the employer's taxable year. The due date for filing the employer's tax return in the case of a tax exempt employer that files Form 990-T (Form 990 or Form 990-EZ if no Form 990-T is filed) is the later of the 15 ^th day of the 10 ^th month after the end of the employer's tax year (treating the calendar year as the tax year if the employer does not have a tax year) or the due date for filing the Form 990 series (plus extensions). An employer will not be treated as having obtained an extension of time for filing the Form 990 series unless such extension is actually applied for and granted. The due date for filing the employer's tax return in the case of a tax exempt employer that is not required to file a Form 990 series return is the 15 ^th day of the 10 ^th month after the end of the employer's tax year (treating the calendar year as the tax year if the employer does not have a tax year).

.07 Exceptions to section 5.05 amendment adoption deadlines

(1) Section 5.05 applies except when a statutory provision or guidance issued by the Service sets forth an earlier deadline to timely adopt a discretionary amendment with respect to a plan year (e.g., an amendment to add a qualified cash or deferred arrangement to a profit sharing plan cannot be adopted retroactively) or where a statutory provision or guidance provides another specific deadline for the adoption of a particular type of interim amendment that is earlier or later than the deadlines under section 5.05. For example, section V of Notice 2005-95 lists specific deadlines to amend for specific provisions.