Do correcting QNECS need to be factored into following year testing?

[John A]

If a plan sponsor has processed a QNEC in 1999 in lieu of corective distributions for 1998 testing results, does that QNEC amount need to be factored into the ADP for participants if performing a prior year test in 1999? My feeling is no, that one would use raw 1998 ADP's.

[Guest]

sorry, I am swamped and can't look it up at the moment.

I know there is something to do with QNECs and not double counting - I thought it was if you used current year in 1998 and then switched to prior year in 1999 then you could not count them. I vaguely recall that timing of the deposit may have had something to do with it as well.

[Disco Stu]

I've made a couple assumtions here...first, the 1998 ADP test was done using the current year method. The failure of this test was corrected in 1999 via a QNEC. Second, you are doing the 1999 testing using the prior year method.

Check IRS Notice 98-1. Mainly it says not to double count. There is an exception for plan years beginning prior to 1/1/99 though.

Tom, regarding your comment about the timing of the QNEC...I think you are referring to the near impossibiliy of fixing ADP failures via QNEC when using prior year testing. To fix a 1999 failure, you'd have to make a QNEC for 1998. 98-1 discusses this as well.