Prior Year testing - no match contributed in prior year

Client elected to make a matching contribution for this current plan year.  The prior plan year, the client chose not to contribute a match. 

Plan uses prior year testing.  I believe that since the prior year match rate for NHCEs was 0%, all match received by HCEs this year needs to be returned due to a failed ACP test.  Do you agree?  Note that this is NOT the first year of the plan's existence, nor the first time that the client is contributing a match.

Th plan could be amended before the end of this plan year to current year testing.  That wouldn’t guarantee it would pass, but would avoid this issue.  I believe the plan then can not switch back to prior year for 5 years

I suppose if the plan easily passed ADP testing you could shift unused deferrals to the ACP test and that might work at least for some match to the hCEs

1 hour ago, Tom Poje said:

I suppose if the plan easily passed ADP testing you could shift unused deferrals to the ACP test and that might work at least for some match to the hCEs

 

The plan passed the ADP test only because funds were classified as catchup.....

I've had the IRS approve a VCP to retroactively amend to current year ACP testing in the same situation. It would have resulted in a refund of close to $500,000 for most of the employer's key staff, so time and effort for VCP was worthwhile.

You may need to focus on timing if this was for 2017. If it's not done by 12/31/18, and the IRS doesn't approve the correction, you would need to make additional QNECs. We submitted about the same time of year with a big, bold note at the top of every page saying it's a time-sensitive correction proposal. Not sure if that made any difference, but it was approved within 2-3 months.

27 reasons not to use "prior year" testing

27 Reasons not to use Prior Year Testing.pdf