adp test and terminated participants

[Chippy]

Working on an ADP test and I have 5 employees that terminated on 12/31/2012 and have comp and hours in 2013. It's their last paycheck of 2012 that was paid in 2013. Do I include those participants in the 2013 adp test? I normally do include those participants, but wanted to double check since 3 of them are HCE's and it makes a difference in passing the test. One of them does have deferrals.

[Tom Poje]

if you don't include those people, then, as you note, you have deferrals that would never have been tested, which makes no sense.

as a general rule, since a document says use W-2 comp, you include comp in whatever year paid.

depending on your document you 'could' count the comp in the 'year earned'

below is a sample language from Accudraft, this in particular came from their 415 good faith amendment.

If you checked that item then you would count it in the prior year.

that means of course, when you ask for comp from the client you would also have to ask for 'the last paycheck comp' not a lot of fun.

I always viewed things as

plan year runs 1/1 - 12/31

and comp runs from something like 12/28 - 12/26 or whatever - the W-2 that falls within the plan year. you do that now on all active people


(I) Compensation Earned in Limitation Year but Paid in Next Limitation Year. If this paragraph (I) is checked, then effective as of the first day of the first Limitation Year beginning on or after July 1, 2007, Code §415©(3) Compensation for any Limitation Year will include any amounts earned during that Limitation Year but not paid during that Limitation Year solely because of the timing of pay periods and pay dates if: (i) these amounts are paid during the first few weeks of the next Limitation Year; (ii) the amounts are included on a uniform and consistent basis with respect to all similarly situated Employees; and (iii) no Code §415©(3) Compensation is included in more than one Limitation Year.

[MWeddell]

If they should have been eligible to defer in 2013, then they are included in the ADP test. If they should not have been eligible to defer, then the plan was operated not in compliance with the plan document, so the situation should be corrected using the EPCRS.

[Chippy]

thanks. I'm including them in the test, since this was eligible comp and was eligible to defer.

[Chippy]

How about for the top heavy testing, would I include their balances/distributions on the top heavy test for 2014? They terminated on 12/31/2012 but had comp/hours for 2013? There are 3 key employees included in this and it makes a difference.

[MWeddell]

I'll let others answer. I work with larger employers and hence rarely perform top-heavy testing.

[Tom Poje]

I've never seen it addressed, I'd lean toward including. (being consistent, since they were included in the ADP test)

again, the document probably says use W-2 comp, and for me, as I noted above I'm using comp/hours that fall within the plan, not the comp/hours within the calendar year.

If you go buy a 'strict' reading of the regs...(I don't have a copy sitting in front of me since I'm not at the office) probably says something like "has not performed service within 12 month period" but how exactly that should be interpreted is probably debatable. what is the intent of the regs? I'd lean toward "not performed service in the plan year"

if only my name was "But what do I know" I'd feel a lot better.

[Chippy]

Thank you Tom. Of course if I include them the plan is top heavy, If I exclude, the plan is not. Probably better to include, better safe than sorry. thanks for you help.