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Failed ADP Test
Benefits & Compensation
Failed ADP Test
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
We have mostly HCEs and therefore always fail our ADP testing. Are there any strategies we could employ to correct this?
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Forums » Topic Forums » Benefits & Compensation » Failed ADP Test
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Failed ADP Test
posted at 10/27/2008 9:41 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
There are strategies to minimize the pain. One of them used to be to increase the amount you are contributing to the non HCEs and thereby pass the test.
You should talk to your DC plan administrator as they should be familiar with the various alternatives. |
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Failed ADP Test
posted at 10/27/2008 11:36 AM EDT
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Are you using the prior year test results opton? If not, you may need to amend your plan document to do so. What this does is that it allows you to know at the beginning of the year the % that HCE's can put in overall and still pass the test...because you use the NHCE %s from the previous year.
Back in the good ol' days we didn't have this option and we had many many failed tests and interims to try not to fail and refunds etc. With the prior year results option, there really is no reason you should be failing. Someone needs to talk to the HCEs about how much they can contribute. Then you need to talk to your 401k consultants about setting up a non-qualified deferral plan for contributions that can not go into the 401k plan. Or you can go with a safe harbor match (3%) so that you don't have to do testing at all. Is your match already 3% for those who participate? For example are you already doing 50% of the first 6%? Might be another plan change that could help. We used to be able to play with plan compensation definitions. I am not sure how much you still can, but your consultant/recordkeeper should be able to help you more. One last area--- what is your plan eligiblity? Do you have a lot of short term NHCEs who dont' ever participate? If so, you might look at changing eligibility and/or vesting to make the plan more useful. A good consultant should be able to talk you through these different options. Rather than just running the test and giving you the results. |
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