FAQ 582: ADP--Borrowing after failing ADP?


The attached test result that printed reflects that the test is failing, but then passes by the borrowing method. However, it also shows the
system computing refunds (or recharacterizing them). How is the system calculating this? Is it first borrowing and then recharacterizing? If
so, why does it show passing through borrowing but then still calculating refunds?


The system corrects a failing test as follows:

1. Calculate catchup for catchup-eligible participants and remove from deferral amounts.
2. Correct a failing ADP by user-chosen method - usually returns to HCEs (it doesn't recharacterize as voluntary employee contributions currently).
3 Determine ATM on returned deferrals to subtract attributable match from matching ACP amounts.
4. Shows a passing ADP (assuming HCE returns will correct) for borrowing to ACP.
5. Corrects ACP (if borrowing doesn't make it pass).

Basically, the system will only borrow from a passing ADP test, and it assumes that the ADP will be corrected before it borrows to pass ACP. It doesn't borrow from ACP to ADP, even if the matching is 100% vested.