QNEC for plan that uses prior year testing method

[nerd-party-administrator]

It's my understanding that a plan that fails ADP/ACP testing using the prior-year testing method cannot allocate QNECs as a corrective measure, but is there any way around this? Can an SCP amendment be done to retroactively change the testing method to current-year so that the plan sponsor can do a QNEC?

[Lou S.]

Well it's not quite that you can't use a QNEC the trouble is the QNEC needed to be made by the end of the Plan Year since that's the 12 months following the testing period. At least that's the way I understood the rule but it never seemed to have much practical application.

You could have amended to current year testing if you wanted to do QNEC but too late for that now for 2019.

 

[Bri]

(Although I've seen plan documents explicitly prohibit the QNEC in a prior-year testing situation, I always wanted one sponsor to finalize their payroll on 12/28 and figure out the QNEC in time to deposit it before the 31st.)

[BG5150]

You can wait until more than 12 months after the plan year end to correct with a QNEC.  See EPCRS for when tests are not corrected w/in 12 months.  One option is QNEC.  It makes no mention whatsoever of prior/current year testing. (The other option is refunds and a 1-to-1 QNEC in the amount of the gross refund).

Thing is, you don't want to do this more than once as it goes against self-correction principles (putting in practices to avoid the error going forward).

[austin3515]

BG 150 that means they have to wait until after 12/31/2020 to correct. And I can;t imagine it would be appropriate to intentionally violate the rules for the sole purpose of adding additional correction options. 

[BG5150]

For one year, I don't see a problem.