Prevailing Wage and prior year testing

[cpc0506]

Plan has gone to prior year testing for the plan year ending 9/30/14.

Plan provides a prevailing wage contribution.

Employee A was not HCE for the prior plan year, but is for this current plan year. Employee A received a PW contribution in the prior plan year as well as the current plan year.

We have used some of the total prevailing wage contributions from the prior plan year to boost the ADP rate for this year. Do I need to increase Employee A current deferral rate by the current year PW contribution to determine if he is due a refund? Or do I ignore the PW contribution?

Sal's book states: "in the rare event that all or part of the HCEs QNECs are included in the ADP Test, it is the current year ADP test for which they are eligible to be included because the prior year testing method applies only to the contributions made by the NHCs".(chapter 11.205) What is meant by this statement "in the rare event that all or part of the HCEs QNECs are included in the ADP Test?" When are they included? When wouldn't they be included?

Thanks.

[ETA Consulting LLC]

When you are using prior year testing, you're comparing two things: 1) ADP for NHCEs in the prior year and 2) ADP for HCEs in the current year.

For item 1, NHCEs in the prior year, you are using "ONLY DEFERRALS MADE BY THE NHCES". Should you decide to use QNECs in the ADP test, where would you use them? The only place allowable would in the current year; but you're only testing the deferral rates for HCEs in the current year. Why would you do that?

Good Luck!

[cpc0506]

Maybe I am not saying this correctly, but we thought that we could boost the NCHs rate for the prior year by using the PW contribution made in that prior year. So that the prior year ADP number is higher when testing the HCEs for the current year. Are you saying that is not allowed?

[ETA Consulting LLC]

The PW is a method of allocating the non-elective contribution. I wasn't addressing that, but merely interpreting what Sal was, apparently, saying in the item you posted. As for PW, I've always looked at that as a mere profit sharing formula (i.e. you could allocate prorata, integrated, by allocation group, or by PW). Beyond that, it's a mere non-elective contribution. "IF" there were some special use allowed by these contributions, then it should be written into the documents language.

Good Luck!

[cpc0506]

The document does dictate that the PW contribution is considered a QNEC (100% vested)

Here is the language of the plan document

c. [X] Prevailing wage contribution.

3. [X] QNEC. The "prevailing wage contribution" is considered a Qualified Nonelective Contribution (QNEC)

As such it is included in either the ADP or ACP Test.

[Lou S.]

based on this I believe the prior year NHCE ADP is SD + PW and current year HCE ADP is current year SD + PW. assuming the deposit timing of PW allows you to use it in Prior year testing.

If the QNEC is in your test you can't throw it out for HCEs but include it for NHCEs.