Reverse QNEC Allocation

[Guest RrtQka]

Plan Administrator will correct a 2013 calendar year failed ADP test with a reverse allocation QNEC.

In calculating the QNEC, I allocated the lowest paid NHCE participant who was still employed on 12/31/2013 a 5% QNEC, Did the same 5% for the next lowest paid NHCE participant and the next until the plan would pass the ADP.

Plan document provides that the Administrator will limit the allocation of any Operational QNEC only to some or all NHCE participants who are ADP participants and must elect whether to allocate a) pro rata, b) in the same dollar amount, c) under reverse allocation method or d) under any other method provided that the QNEC is subject to targeting limitations and not conditioned on whether the participant made a deferral

Plan document further provides that under the reverse QNEC allocation method, Plan Administrator will allocate a QNEC first to the NHCE participant with the lowest comp for the plan year .... with any remaining amounts allocated to the next highest paid NHCE participant(s) ... and continuing in this manner until the Administrator has fully allocated the QNEC.

Plan Administrator now advises that while the first lowest paid participant was employed on 12/31/2013, he terminated employment shortly after 01/01/2014 and Plan Adminstrator does not want to allocate that participant a QNEC and has asked me to recalculate the QNEC for the next lowest paid NHCE participant.

In reading the plan document provisions, is it your opinion that we can skip one NHCE and choose the next in line?

[Belgarath]

Off the top of my head, no, I don't think this satisfies the reverse allocation method as you describe it. The document provides for specific allocation method under the reverse allocation method, which doesn't allow flexibility.

However, this may be meaningless. Since under the "D" option they can use "any other method" subject to targeting limitations, then I think you can essentially do the same thing with more flexibility - and therefore can ignore the lowest paid employee who subsequently terminated.

I didn't do any research on this, so please take this opinion with a healty dose of caution! I'll be interested to see if others agree.