ADP testing, need info on borrowing method

[Guest LTurner]

I'm a small administrator with plain vanilla plans. I have a plan that will fail the ADP test unless I borrow from the ACP percentage. Never had this problem before. ( I use ASC software and am confidant in the calculations and compliance, however - I want to be able to determine this process without the software.) Can anyone tell me specifically the process for the borrowing method? or where to find good data on it? Is it simply a documentation process, or are assets actually recharacterized or what?

all advice is greatly appreciated.

[Guest]

by 'borrowing' I am assuming you mean using "acp" $ in the ADP test.

(or one can use deferrals in the ACP if needed, but you indicated that you failed the ADP test)

The ERISA Outline Book has some excellent data/examples on this. If you don't have this book on your shelf, you might consider obtaining one. (no, I don't get a commission for pushing this book!)about 30 pages worth.

I don't recall how much info is (or will be) in the Coverage and Nondiscrimination Answer Book. not a lot of info. I actually will be taking a look at the pre-release 2nd edition shortly but its not ready yet anyhow so that wont help you)

Regardless, you always have to follow the terms of the document, but since we are in restatement time, you might be able to get by even if the document doesn't specifically state the procedure.

Anyway...

I have always treated the 'shifting' of deferrals to the ACP test as a 'on paper' only sort of a deal. (Otherwise you would move 100% vested $ to a subject to vesting area and we know you can't do that.) Before you can shift deferrals to the ACP test the ADP test MUST pass the 2 test.

And after you shift, the ADP test must pass. You can shift a different % for the HCEs than for the NHCEs.

The shifting of match to the ADP is different.

The way to remember is that amounts used in the ADP test are always and have always been 100% vested. Therefore, to 'move' match money, you are no longer treating it as a match, but are now designating it as a QMAC. Therefore 100% vested and subject to the same distribution rules as for deferrals. I guess because of this I wouldn't expect to see it used as often. Or because mostr document dont contain QMAC language it wouldn't be used.

Reg cite would be 1.401(m)-1(d) example 3 (iii)

I dummied up an excel sheet to move deferrals, though I suppose reversing the ACP and ADP numbers in the sheet would accomplish the same thing.

All this assumes you pass ACP test. if not, moving $ is not going to help.

Note: shifting may not always help a plan pass, but it should reduce the amount of refund. It is possible to shift all deferrals (or have only a QMAC) and thereby eliminate the multiple use test.

hope I didn't leave out anything.

[Guest LTurner]

thanks so much... exactly what I needed. I'll also be ordering the book. Kudos to you!