Catch-all "anti-abuse" reg for ADP Testing

[austin3515]

Can someone point me to the reg that was added to the final 401k regulations that essentially said "hey, no funny stuff--even if a literal interpretation of the regs says its ok, you can't monkey with stuff in such a way that it impacts the testing."

I know in practice it can essentially be ignored, but I'm running an ADP test on net op and we have someone clocking in at 1,000 percent (they're deferring 90%, so 90/10 = 900% (she has 125 pre-tax premiums to boot pushing her over 1,000%). I'm just concerned this might be a situation where the IRS might employ this vague rule.

I believe it was the IRS response to the bottom up QNEC, which smells like what I have here.

[Belgarath]

Try 1.401(k)-1(b)(3). I think that's what you are referring to.

[austin3515]

That's it, thanks!

(3) Anti-abuse provisions. This section and §§ 1.401(k)-2 through 1.401(k)-6 are designed to provide simple, practical rules that accommodate legitimate plan changes. At the same time, the rules are intended to be applied by employers in a manner that does not make use of changes in plan testing procedures or other plan provisions to inflate inappropriately the ADP for NHCEs (which is used as a benchmark for testing the ADP for HCEs) or to otherwise manipulate the nondiscrimination testing requirements of this paragraph (b). Further, this paragraph (b) is part of the overall requirement that benefits or contributions not discriminate in favor of HCEs. Therefore, a plan will not be treated as satisfying the requirements of this paragraph (b) if there are repeated changes to plan testing procedures or plan provisions that have the effect of distorting the ADP so as to increase significantly the permitted ADP for HCEs, or otherwise manipulate the nondiscrimination rules of this paragraph, if a principal purpose of the changes was to achieve such a result.

[Peter Gulia]

So were the plan's provisions and testing procedures applied consistently across all participants?

And if so, were they applied consistently over the years?

[austin3515]

yes and yes. We;'ve been running on net comp for years now.