QNEC and ADP Testing

[Guest TMS]

For the December 31, 2012 plan year, a plan uses current year testing to run the ADP test. Test fails. The sponsor elects to deposit a QNEC to non-HCE's before the end of 2013.

The sponsor also amends the plan to prior year testing before the end of 2013.

Should the corrective QNEC deposit be included in the 2012 non-HCE deferral average for the 2013 ADP test when using prior year testing?

Thanks.

[ETA Consulting LLC]

Yes, if the plan meets the conditions of amending to use the prior year method.

Good Luck!

[Lou S.]

I'm pretty sure you can't double count the QNEC for 2012 and 2013.

[Lou S.]

http://www.irs.gov/irm/part4/irm_04-072-003.html

4.72.3.6.1.4 (06-07-2010)

Limits on Double Counting of Certain Contributions

1. When a plan changes from current year testing to prior year testing, contributions on behalf of many, if not all, NHCEs are likely to be double counted. For example, if a plan used current year testing in 2008, and then changed to prior year testing in 2009, employee contributions on behalf of NHCEs for 2008 will be counted twice; once in 2008 in calculating the NHCE ACP under the current year testing method, and again in 2009 in calculating the NHCE ACP under the prior year testing method. To limit double counting, section 1.401(m)-2(a)(6)(vi) of the Regulations provides that QNECs cannot be used in prior year testing if they were used in current year testing in the preceding year.

[Guest TMS]

Thanks for the quick responses.

[ETA Consulting LLC]

Thanks. I was under the impression it was used if timely deposited. I see, here, that QNECs, are specifically excluded from being used twice; even though the amendmend to prior year testing does causes all other contributions to get used twice. I stand corrected

Good Luck!

[Guest ppapdx]

Just check the plan TMS...

[buckaroo]

One additional issue to consider is the 415 Limit. In general, employer contributions must be made within 30 day of the tax filing deadline to be counted in the testing year's 415 testing. If the contribution is deposited later, it is counted in the current year. This will present problems when a participant is receiving a QNEC and terminated in the testing year.