Chapter 4 - Special ADP/ACP Testing Rules Flashcards
Double Counting Rule
Only comes into play when the plan changes from current year testing to prior year testing.
If there were QNECs in 2016 (for when the plan was on CY testing) it has to be removed in 2017 (now that the plan is on PY testing).
If QNECs were not used in 2016 (for when he plan was on CY testing), they could be used in 2017 (now that the plan is on PY testing).
You can only use QNECs once.
Double counting limits do not apply to QMACs
Deemed 3% Rule
Comes into plan when a new plan has elected to use prior year testing.
For the 1st year, the plan has two choices:
1) Assume that the ADP for the NHCEs was 3% or…
2) They can use the actual ADP for the NHCEs
The employer would want to consider if the actual ADP for NHCEs will be higher or lower.
Potential, if actual ADP is used, you could use it for 2 years in a row.
Otherwise Excludable Employees
For ADP/ACP their are two choices:
1) Early Participation Rule - run 1 test with all statutory employees and any HCEs from the Otherwise Excludable Employees.
2) Disaggregated plan rule - Run two tests, one for the Otherwise Excludable Employe es and one for the statutory employees.
Early Participation Rule
The early participation rule allows a plan that disaggregates otherwise excludable employees for coverage purposes to perform the ADP test and the ACP test, taking into account all statutory employees and only those otherwise excludable employees who are HCEs. The otherwise excludable Nonhighly Compensated Employees (NHCEs) are left out of the ADP and ACP tests entirely.
Otherwise excludable employees are those who have completed less than one year of service or are under age 21.
——-Notes from Class—–
Related to ADP/ACP tests with SE and OEE:
Run 1 test with all statutory employees and any HCEs from the Otherwise Excludable Employees.
A plan that disaggregates “otherwise excludable employees” for coverage purposes may perform the ADP test and the ACP test, taking into account all statutory employees and only those otherwise excludable employees who are HCEs. This is referred to as the “early participation rule.” In other words, the otherwise excludable NHCEs are left out of the ADP and ACP tests entirely. All of the statements regarding the election to use the early participation rule for plans covering otherwise excludable employees are true. Otherwise excludable employees are those who have completed less than one year of service or are under age 21.
Disaggregated plan rule
Related to ADP/ACP testing when there are SE and OEE:
Run two tests, one for the Otherwise Excludable Employe es and one for the statutory employees.
Mandatory aggregation rule for HCEs
If a company has two divisions and a plan for each division, if an HCE moves from one plan to the other in the plan year, their deferrals and comp will be aggregated and used in both plans.
