ADP/ACP Correction Question

Can a plan utilize both a QNEC and ROE for correcting ADP/ACP failures? The client essentially wants to fund a little via the QNEC which should, in turn, lessen the ROE. Is this allowed?

Similarly - Can any client fund a QNEC at any time or are QNECs only for use in ADP/ACP corrections? I feel like I have been told they can be done whenever and wanted to make sure.

Thank you!

As long as they're permitted by your plan document, then that's absolutely a workable solution to the test results.

QNECs in and of themselves can exist for no particular reason other than Sponsor goodwill.  But they're usually provided specifically because of how they help testing results.

Thank you, Bri! While an odd scenario I haven't used, a client brought it up today and I was very sure it was possible, just kind of silly as the math doesn't usually work in their favor. They're just the curious type and I like to be very straight with them on how things work.

One follow-up - Is a QNEC is given in the "goodwill" fashion, the contribution given still counts as Employee Deferrals when calculating the ADP/ACP test, correct? And I would assume the 402(g) limit still needs to be followed when adding actual deferrals to the QNEC amount?

No, QNECs are not subject to 402(g).  Somebody could do 24,500 AND get a QNEC.  They're nonelective contributions, so I suppose a sponsor could give someone a 72,000 QNEC if they wanted to be that *one* employer.....

They are included in the 401(k) test if the employer elects to treat them that way.  So in theory, not necessarily, but it's one of those things where the sponsor's probably making them only with the intent of including them.

(And then the 401a4 rules can get slightly annoying if you do have QNECs being used in the ADP test.)