401(k) Plan - with Coverage, ADP/ACP failures

[msmith]

401(k) Plan is failing Coverage (both Ratio and ABPT) on the Match portion. The ADP and ACP Tests are also failing.

If I use QNEC to bring in more participants (remove last day/1,000 hour requirement), can I also use that QNEC for ADP/ACP purposes?

I thought I read (somewhere) where the QNEC could not be used for the ADP or ACP Testing. But I can't locate it now.

 

[Tom Poje]

reading something like Lord of the Rings is probably more interesting, but you must have read the regs. sounds like your plan is somewhat the same as Sam trying to get passed the Silent Watchers - he could not PASS either without some 'light' on the subject

1.401(k)-2(a)(6)((ii) which says if you use a QNEC in either ACP or ADP then you have to pass 410(a) with and without the Qnec

[msmith]

Thank you, Tom! I cannot consider this plan as the "Precious."

[Tom Poje]

still, in comparison, it does have a kind of similar "ring" to it. hope you have a good ending to it.

 

[msmith]

Tom - I am not sure what you mean by passing 410(a) with and without the QNEC. This Plan has a 3 Month eligibility condition, with Entry on the date eligibility is met.

Can you advise?

 

[Mike Preston]

I think he meant 401(a)(4), but Tom will no doubt clarify.

[austin3515]

Take a look at the regs under 1.401(a)(4)-11(g) which tells you specifically what to do to correct coverage:

(vii) Special rules for section 401(k) plans and section 401(m) plans—(A) Minimum coverage requirements. In the case of a section 401(k) plan, a corrective amendment may only be taken into account for purposes of satisfying §1.410(b)-3(a)(2)(i) under this paragraph (g) for a given plan year to the extent that the corrective amendment grants qualified nonelective contributions within the meaning of §1.401(k)-6 (QNECs) to nonhighly compensated nonexcludable employees who were not eligible employees within the meaning of §1.401(k)-6 for the given plan year, and the amount of the QNECs granted to each nonhighly compensated nonexcludable employee equals the product of the nonhighly compensated nonexcludable employee's plan year compensation and the actual deferral percentage (within the meaning of section 401(k)(3)(B)) for the given plan year for the group of NHCEs who are eligible employees. Similarly, in the case of a section 401(m) plan, a corrective amendment may only be taken into account for purposes of satisfying §1.410(b)-3(a)(2)(i) under this paragraph (g) for a given plan year to the extent that the corrective amendment grants qualified nonelective contributions (QNECs) to nonhighly compensated nonexcludable employees who were not eligible employees within the meaning of §1.401(m)-5 for the given plan year, and the amount of the QNECs granted to each nonhighly compensated nonexcludable employee equals the product of the nonhighly compensated nonexcludable employee's plan year compensation and the actual contribution percentage (within the meaning of section 401(m)(3)) for the given plan year for the group of NHCEs who are eligible employees.

For ADP Testing, I just don't see anything at all that says that you cant use the QNECs in the ADP test.  And it would be analogous to adding people in for profit sharing but then saying you still have an (a)(4) discrimination problem because I can't treat them as having received any contributions.  This does not violate Tom's rule that you have to satisfy (a)(4) with an without QNECs.  I'm assuming there is no profit sharing, so the only nonelective contributions are going to NHCEs.

 

[Tom Poje]

msmith, yes, I did mean 401(a)(4)

I started to write 410(b), and knew I didn't mean coverage, but when I changed it I only partially changed it. my bad. my apologies.

[msmith]

Thanks to all that responded! I will be making QNEC's to pass Coverage and they will only be made for NHCE's.