ADP Testing

[PFranckowiak]

Prior year testing.  Take over plan

Plan excludes bonus

Failed 414(s) for year end 12/31/18

They used Total Compensation for the ADP Test for 12/31/18

This year do we run ADP using Total Compensation for HCE's since the number we have for the NHCEs from last year was TC?

Also what is the rule for changing from Prior Year to Current year .. Can we change or is there a 5 year wait?

ADP has been prior year for a long time.  ACP has been Current year and just changed to prior year last year.

[John Feldt ERPA CPC QPA]

You can always amend to use current year. The limitation applies when you try to amend from current year to prior year.

[Doc Ument]

John correctly states the 401k rule regarding switching the "year" of testing. However, I believe that such an amendment is, nonetheless, a discretionary amendment that is subject to the IRS policy that any such change must be adopted within the year of its implementation (regardless of the subject matter), which in this case, I believe would be the testing year that has already ended on 12/31/18. To the extent that you agree that a change in ADP method is a discretionary amendment that should have been adopted by the end of 2018, I think that you would in some cases still be able to switch the testing year to the "current-year" method as part of a "Regulation 1.401(a)(4)-11(g)" corrective retroactive amendment, but one of the conditions for adopting an 11(g) amendment (regardless of its content) is that you need to adopt that amendment by the 11(g) deadline, which if I recall correctly is the 15th day of the 10th month after the plan year of correction. So I caution that it might be too late to adopt a discretionary or corrective amendment for calendar year 2018 in November of 2019 (except, perhaps, under EPCRS). You can certainly change to the current-year test method for 2019 by adopting an amendment by 12/31/19 .

[John Feldt ERPA CPC QPA]

I agree. The general question being "what is the rule for changing from Prior Year to Current year"? You don't have to look back at the 5 prior years to switch now to current year testing.

[ugueth]

If you need a cite, it's Reg. 1.401(k)-2(c)(i)

(c) Additional rules for prior year testing method—(1) Rules for change in testing method—(i) General rule. A plan is permitted to change from the prior year testing method to the current year testing method for any plan year. A plan is permitted to change from the current year testing method to the prior year testing method only in situations described in paragraph (c)(1)(ii) of this section. For purposes of this paragraph (c)(1), a plan that uses the safe harbor method described in §1.401(k)-3 or a SIMPLE 401(k) plan is treated as using the current year testing method for that plan year.