ACP Prior Year Test Failure

[pam@bbm]

Looking for advice. A 401k plan uses prior year testing for ADP/ACP. The employer hasn't matched for 6 years. The ACP test failed and the correction method is to refund 100%to all HCEs. I believe this is because the prior year's ACP is 0%. Is it possible to use the 3% that can be used for a first year plan? Can I go back to the last ACP test from 6 years ago? Has anyone had this situation? I'm not sure where to look for the answer.

[BG5150]

No you may not. You must have a year with NHCE only getting matches.

Or, you can swtich to current year testing for ACP-only for 5 years. You do not have to test ADP and ACP on the same basis.

[Tom Poje]

prior year testing makes little sense with a discretionary match precisely because of the situation you are in.

some documents permit you to limit the match to HCE to prevent failure.

possibly if you have some 'extra' ADP for the NHCEs you could shift some to the ACP test. haven't heard that being done in a situation like this, but last year people were eligible for a match though none was made. this is different than if people weren't even eligible for a match, so I believe you can do that

[buckaroo]

1) Shifting from ADP test (if applicable)

2) Does the plan have true after-tax? If so, it would be included in ACP and would help (but probably wont fix).

3) The corrective action would be to refund. This could still "provide for" the HCEs as they will receive a refund of some to all (depending on vesting).

[BG5150]

Or, you could wait more than 1 year to correct the failed test and make a QNEC under EPCRS.