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Late ADP ACP corrections


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We've been asked to provide testing services for a payroll company bundled plan.  The payroll company did not perform the ADP/ACP tests for 2022.  I don't recall why it was not done or why they would not agree to do it now.  So we agree do it  for a healthy fee (they are a client for other purposes, just not TPA.)  

Testing fails and refunds are due for ADP and ACP, not 401(a) on the match.)  Now that is April 2024 and this is a 2022 plan year.  I believe the last I read was this can be corrected without risk of disqualification by end of second year.  I will tell the payroll company to do the earnings calculation and  hopefully their tax advisors will do the 5330. 

Am I missing anything.  I'm not filing under a correction program.  If someone says that is needed, I tell the plan sponsor to get someone else for that.


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Thanks Lou - so the ADP corrective distribution is $644 without earnings (low because recharacterization as catchup solved most of the issue.)   However the ACP refund is $4888.  So you are saying they need to make a QNEC of those 2 together and allocate to all eligible, a group with $10,600,000 in wages.  So about $13 for a person making $30,000. There are 245 NHCEs and probably 200 have no plan balance.  This will throw them into an audit requirement.   No other easy solution?

I'm just going to hand the testing results back to the large payroll company and tell them to issue the refund and do the self-correction. 


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That's what I see on based on IRS guidance as an approved correction. You can try other solutions using VCP or refer them to an ERISA attorney who may have other solutions.

You might also check the IRS guidance to see if there is a de minimus amount that doesn't doesn't need to be allocated. Like if the QNEC for an NCE is under $X you can allocate to other NHCEs? But I don't know if that's a thing or not, just spitballing some ideas for you.


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Agree with Lou - you might want to try VCP and suggest something where only those with balances (EPCRS does let you restrict it to "only those still actively employed" in self-correction) get the corrective contribution.

Can't say whether the "going off-script" might require some juicing of the corrective allocations.

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