ADP Testing for New Plan who uses prior year testing....

[Pammie57]

The 401k Plan became effective 9/1/2014; it is a calendar year plan so a SPY for 2014. Nobody deferred anything until February 2015. During 2014 there was only rollover money put into the plan.

Plan eligibility: waived for anyone there on 9/1/2014

Normal eligibility: 6 mos svc and age 21 - monthly entry

Plan using prior year testing method for ADP; there is no match to consider...

815 employees worked in 2015 with lots of turnover - not the best plan design ever.

There is NO 2014 ADP rate because nobody deferred during the Short plan year. (9/1 - 12/31).

So for 2015 - anybody employed on 9/1/2014 is in the test - anybody who meets the 6 months hired after 9/1/2014 is in the test.

we know to use the statutory exclusion provision to test those who had worked less than a year. HERE is the Question:

**** Could we assume the 3% ADP rate for all of the NHCE's in 2015? (test based on prior year)

I hope this makes enough sense that somebody can give me an opinion....Help!

[Lou S.]

No you can not assume 3% prior year for 2015, the 3% rate applies to 2014 testing.

edit - you could have used 3% for 2015 if you made the plan a profit sharing plan for 2014 and added the 401(k) component with an effective date in 2015 since 2015 would have been the 1st year of the 401(k) component. But because folks were eligible to defer in 2014 (but didn't for whatever reason) you can't 3% as the prior year percentage at this point.

[Pammie57]

So since nobody deferred in 2014 - then the NHCE percentages are 0% for 2015 test...I assume...then there is no way to pass since HCE's did defer in 2015?.

[Lou S.]

So since nobody deferred in 2014 - then the NHCE percentages are 0% for 2015 test...I assume...then there is no way to pass since HCE's did defer in 2015?.

2 times zero is zero last time checked.

Other than catch-up contributions, HCEs can't defer using prior year testing.

[Pammie57]

touché........point taken.

Thanks for the help. and the HCE's are under 50 so.....I see refunds in their future.

[BG5150]

FULL refunsds