TH Minimum required by plan document to be made as QNEC

[jkharvey]

I have a document (not our design) that has some language I'm not used to seeing. The plan does not provide for PS contributions. The plan is TH and provides that any TH minimum contribution will be a QNEC. There is one HCE who is NOT a Key EE, so he is getting this QNEC. Is this QNEC required to be used the ADP test to determine his ADR? The plan already fails ADP, so adding this QNEC to this HCE will make things much worse.

[Lou S.]

That would seem to be a poorly worded document. I assume it was written like that to get the most bang for the TH buck by throwing it in the ADP and no one thought about the HCE as non-key problem. I don't think you are required to put the QNEC in the ADP test but if you don't put the HCE QNEC in the test, I don't think you can put the NHCE QNEC in the test either. Can you run it both ways and see which results in the lower refund?

As a side note if the plan is TH and making a 3% to only non-key anyway why not just amend to 3% SH and excluded HCEs from the SH to avoid this problem as well as eliminate refund at the same time?

[jkharvey]

Thanks. We have already amended for 2014. We are just doing the administration with what we have for plan language. You are correct. Very poorly worded document.

[austin3515]

I think it's actually kind of clever although they should have had non-key HCE THM go in as PS. Although I suppose a regular document gives you the option of going either way (PS or QNEC) and I like discretion

[Kevin C]

If the non-key HCE receives a 3% PS and the NHCEs receive a 3% QNEC, it doesn't work. You are required to pass 401(a)(4) for the nonelective contributions both with and without the QNEC. See 1.401(k)-2(a)(6)(ii).

(6)Qualified nonelective contributions and qualified matching contributions that may be taken into account under the ADP test.—

Qualified nonelective contributions and qualified matching contributions may be taken into account in determining the ADR for an eligible employee for a plan year or applicable year but only to the extent the contributions satisfy the following requirements—

...

(ii)Requirement that amount satisfy section 401(a)(4).—

The amount of nonelective contributions, including those qualified nonelective contributions taken into account under this paragraph (a)(6) and those qualified nonelective contributions taken into account for the ACP test of section 401(m)(2) under §1.401(m)-2(a)(6), satisfies the requirements of section 401(a)(4). See §1.401(a)(4)-1(b)(2). The amount of nonelective contributions, excluding those qualified nonelective contributions taken into account under this paragraph (a)(6) and those qualified nonelective contributions taken into account for the ACP test of section 401(m)(2) under §1.401(m)-2(a)(6), satisfies the requirements of section 401(a)(4). See §1.401(a)(4)-1(b)(2). In the case of an employer that is applying the special rule for employer-wide plans in §1.414®-1©(2)(ii) with respect to the cash or deferred arrangement, the determination of whether the qualified nonelective contributions satisfy the requirements of this paragraph (a)(6)(ii) must be made on an employer-wide basis regardless of whether the plans to which the qualified nonelective contributions are made are satisfying the requirements of section 410(b) on an employer-wide basis. Conversely, in the case of an employer that is treated as operating qualified separate lines of business, and does not apply the special rule for employer-wide plans in §1.414®-1©(2)(ii) with respect to the cash or deferred arrangement, then the determination of whether the qualified nonelective contributions satisfy the requirements of this paragraph (a)(6)(ii) is not permitted to be made on an employer-wide basis regardless of whether the plans to which the qualified nonelective contributions are made are satisfying the requirements of section 410(b) on that basis.