ADP/ACP first year 3% rule

1. Plan established 2022

2. Prior year testing method elected in the document

3. Discretionary Match - nothing funded for 2022

For the first year, the 3% rule was used - HCEs 0% NHCEs 3% - plan passes ADP

They never made a match until 2023.  Since this was the first plan year of the match, can they use the 3% first year rule for the match contribution?

No

Unfortunately, that is a textbooks example of why prior year testing for the ACP test is generally a very bad option.  

What does your plan document say (the relevant language is likely in the BPD)?  The pre-approved documents I know provide that the 3% is based on the first plan year in which the plan "provides for" matching contributions (see Treas. Reg. §1.401(m)-2(c)(2)).  Effectively, the question is: when was the 401(m) plan adopted?  The 3% rule exists because you can't have an ACP or ADP for the year prior to the adoption of the plan. 

IMO, by adopting a discretionary match, the plan "provided for" a match and created the 401(m) plan in 2022.  The fact the employer elected not to make a discretionary match just means that they had a 2022 ACP of 0% - and fell into the trap associated with using prior testing for the ACP test.  The plan would likely be much better served by amending to use current year testing for ACP; they can remain on prior year for ADP (but it is too late for 2023).