Order of Compliance Testing 401(k) Plans

It has been a hot minute since I have been involved with compliance testing, but I am pretty sure I remember that there is a distinct order to the compliance tests. Lets assume we have a 401(k) plan with deferrals, match and after-tax contributions. There are participants who exceeded the 415 limit due to after-tax contributions.

It has always been my understanding that the excess annual additions are corrected first and not included in the ADP/ACP Test. The issue here is that the service provided is stating that they do not need to do 415 excess corrections because those get refunded by application of the ACP Test, but in this case we are doing EPCRS corrections with a one-to-one QNEC and including the excess annual additions in that test inflate the QNEC.

Just confirming I have no lost my testing marbles and if you have a reference that would be great (was there pre 2009).

I am not aware of a formally stated "order of compliance", but practically speaking there is an order of compliance to make sure that the correction for each individual is accurate.

The correction of a 415 excess after-tax contribution is an EPCRS 5.01(3)(a) excess amount and is corrected by issuing a refund to the participant who made the excess contribution. This refund is not included as a contribution in performing the ACP test.  

There is a two step process for correcting ADP/ACP test failures.  The first step is to determine how much needs to be removed from HCE accounts based on the reductions in contributions in descending order of the average ADP or ACP percentages.  The second step is to remove the dollar amount of these reductions in descending order of the 
dollar amount of contributions made by each HCE.  The effect is an HCE who contributes a higher than average dollar amount but has a low ADP or ACP percentage because the HCE has a high compensation has the refund taken from their account even though they did not have a high ADP or ACP percentage.  If this HCE happened to be a participant who exceeded the 415 limit, the ADP/ACP refund should not reduce the amount of their 415 excess.