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0% prior yr NHCE ADP


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So there were no 401(k) (or other) contributions during the plan year.

ADP test is based on prior year NHCE ADP.

Since 2 x 0% = 0, no 401(k) is allowed for HCE in the next year.

I just haven't had that happen before, but I believe the options are as follows:

  • HCE's over 50 are actually limited to the catchup amount, rather than 0's.
  • Prior to end of the plan year switch to current year testing
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Agree that HCEs over age 50 could make catch-up contributions during the current year. If they are key employees and the plan is top heavy, this would also allow them to make contributions without triggering the top heavy minimum for the non-keys, since catch-up contributions in the current year are disregarded for top heavy.

Assuming that the plan did not switch to prior year testing during the last 5 years, then it could switch to current year testing. However if none of the NHCEs defer in the current year then you are back in the same situation.

Another option would be to do a 4% safe harbor non-elective contribution for the NHCEs.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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10 minutes ago, C. B. Zeller said:

Agree that HCEs over age 50 could make catch-up contributions during the current year. If they are key employees and the plan is top heavy, this would also allow them to make contributions without triggering the top heavy minimum for the non-keys, since catch-up contributions in the current year are disregarded for top heavy.

Assuming that the plan did not switch to prior year testing during the last 5 years, then it could switch to current year testing. However if none of the NHCEs defer in the current year then you are back in the same situation.

Another option would be to do a 4% safe harbor non-elective contribution for the NHCEs.

Corey, it would just be 3% for the 2024 year if adopted by 12/1/24, right?

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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3 minutes ago, Bill Presson said:

Corey, it would just be 3% for the 2024 year if adopted by 12/1/24, right?

Yes, I guess I was thinking about a 2023 plan year based on a 0% ADP for 2022. But a 3% SHNEC could be adopted for 2024 before 12/1/2024.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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Thank you kind commenters!

Re the QNEC/SHNEC ideas - company has no interest in making any kind of contribution for the recent plan year.

Interestingly, it is a fiscal year, so they could theoretically contribute catch up amounts for two different calendar years within the same plan year.

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An initial corrective QNEC must be applied no more than 12 months after the year of deferrals.  

In this case (I'm guessing), it's the 12/31/23 plan year.  Therefore the deferrals in consideration are from 2022.  The QNEC must have had to have been applied no later than 12/31/2023.

However, if you wait until 2025, you are in EPCRS correction and can therefore apply a QNEC again.  (Keep in mind, though, correcting under EPCRS, you cannot test otherwise excludables separately; they must be included in the test and might increase the QNECs substantially.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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