De Minimus Testing Refund?

[Lou S.]

Pretty sure I've researched this in the past but is there a de minimums refund limit that you don't have to make? We have 2 ACP refunds, one for $1 + earnings and another for under $100.

Unfortunately I think the answer is we need to make these refunds but just wanted to know if there was something I was missing.

[Tom Poje]

without knowing your software it is hard to say. certainly $100 is not de minimus.

but let's say my NHCE avg is 2.05

that means my HCE avg would be 4.05, or for that matter, since you round to the nearest 100th it could be 4.054 and that might be enough to eliminate the $1. I've had situations in which I have been able to adjust things enough to reduce the refund slightly.

another possibility is to test using comp - all deferrals

or if you had someone enter midyear who deferred to use comp from date of entry.

if your ADP test passes, that implies you may have some deferrals you could shift to the ACP test in order to make the test pass.

[Lou S.]

Well the ADP fails but no refunds are required because all the excess is recharacterized as catch-up and remains in the plan so I don't think I'm allowed to shift.

Also plan uses prior year testing. If I'm allowed to shift 0.02 from ADP -> ACP the plan will pass ACP. This would create slightly larger refunds for ADP but still well below the catch-up limit so no ADP refunds would be required either.

If this is something I'm allowed to do I'd love to take advantage of it. Is there a citation on how and when you are allowed to shift that I can look at?

And on a chuckle note, NHCE ACP is closer to .05 than it is to 2 to use your numbers.

[Lou S.]

Interesting just found this http://benefitslink.com/boards/index.php?/topic/52196-shifting-if-adp-fails/ from last year (or 2 years ago)

particularly the last post

I have never heard that method proposed.
Based on what I see in the regs (or at least how I've seen them interpreted) that would not be possible.
your suggestion put another way would be:
plan fails test initially, create some catch up, now plan passes. so now I can shift.
shift some NHCE deferrals.
Plan now fails ADP again, so create even more catch up and plan still passes which is what the requirement for shifting requires.
The problem with that:
Suppose you had a 2nd HCE (not catch up eligible) who had a refund.
You never rerun an ADP test after calculating refunds because the top-down method of refund is based on $ deferred not percent, but you are, in a round about way suggesting that.
Interesting suggestion though.

Though what might work (never tried it) run the ADP test on comp less deferrals, failing the testing even more, creating a larger catch up, and then shift. I wouldn't think that would work, but without seeing actual numbers it might work.

I can tell your for a fact that by shifting in my example the plan will create larger ADP refunds all of which can still be reclassified as catchup even though there are 2 NHCs involved.

time for me to read the attachment in the other thread...

[Lou S.]

http://benefitslink.com/boards/index.php?/topic/41238-adpacp-test-shifting-question/

do'h now I know I'm getting old. I asked this same damn question 5 years ago.

[John Feldt ERPA CPC QPA]

I almost did exactly that. A colleague of mine was asking a question about a reversion from a DB plan (hadn't seen those in a while), and I almost posted a question about the 20% excise tax. Had the question written up, then decided to search one last time and found my post from 2008 with a reference to Rev Rul 2003-85. He was kind enough to not laugh too much.

[Tom Poje]

at the 2009 ASPPA Conference, IRS Q and A

the IRS comment was that you could indeed shift even if you treated some deferrals as catch-up, but of course you couldn't use those deferrals as part of the shift.

and they added, well, my translation,

since you have to pass ADP before and after the shift this would only work if you ACP test for the NHCE was less than 2 and you could take advantage of the 2 * multiplier

see Q 15 and 16