ADP/ACP Shifting - Prior Year Testing

[Lou S.]

Plan uses prior year testing.

If using current year testing would pass ADP & ACP easily.

Plan passes ADP by a lot using prior year testing.

Plan fails ACP by tiny amount using prior year testing.

Matching formula has always been the same in the plan.

Can I shift small amount of prior year ADP to prior year ACP to pass ACP test?

I know I can do this current year, I'm just looking to see if it is allowed with prior year.

[Tom Poje]

assuming all bells and whistles are the same, then yes

by that I mean you don't have some screwy like prior year ADP current year ACP

you aren't using comp less deferrals in prior year and total in the current year, etc.

if you have a last day rule for match you can't shift deferrals for that person because he can't have anything on the ACP side

ERISA Outline Book also agrees chapter 11 section IX part C.2

[Lou S.]

Thanks. Yeah nothing screwy at all. No last day. No split current/prior issue, both are prior year. Everything looks kosher expect for the fact that the prior year ACP is just a hair too small.

[Tom Poje]

that is the purpose of the shift.

I know the software we currently use won't shift with prior year testing so we have to show it on paper, but that doesn't make it incorrect.

it also won't shift any HCE so it will return a message saying you can't shift when you could have.

the classic example was from the regs many years ago which was

HCE 10% 10%

NHC 10% 06%

the regs back many years ago said you could shift and end up with

HCE 0% 20%

NHC 0% 16%

which would pass the ACP test using the 1.25 times test.

of course the example from the old regs goes back far enough that 15% was all that was deductible in a ps plan and deferrals counted toward deductibility, so you would never be able to actually deduct it!

[BG5150]

Why would you want to switch in that example? Don't both tests pass?

ADP 10 to 10 passes.

ACP 10 to 8 passes (8 * 1.25 = 10)

[Tom Poje]

I fixed the example

it should have been a 6 not 8

the original example said you could have made it

10 10 and

10 8

or

20

16

but I can't type

[BG5150]

makes a little more sense now