Prior Test Question Help

[Guest Jhagan]

Can someone offer some explanation to question #11 from the 06/04/98 exam?

[Guest Danavjack]

Could you post the question?

[Guest Jhagan]

Based on the following information, what is the maximum Average Deferral Percentage (ADP) for the Highly Compensated Group for the year ended December 31, 1997?

The 401(K) plan was established on January 1, 1997.

The ADP for the Non-Highly Compensated Group based on 1997 deferral and salary data is 2.60.

The plan does not allow employer matching or employee after-tax contributions.

An election was made by the employer to use the prior year testing method.

The Answer is 5.00.

[This message has been edited by Jhagan (edited 03-24-99).]

[This message has been edited by Jhagan (edited 03-24-99).]

[Jean]

When you use the prior year test method you look back to the NHCEs ADP for the previous plan year. Because your test year is the first plan year, you have an assumed 3% ADP for the prior year. Therefore, your question would assume 3% + 2%

[Guest Jhagan]

Thank you! We are administrator for governmental plans only and are not subject to ERISA. Most of the test material is new to me. I am sure I will have more questions.