FAQ 769: ADP--Borrowing method


I'm having trouble understanding how the borrowing method is being used on the attached ADP/ACP test.

On the ADP report under C. Step Two - To help a plan pass a failing ACP test, we are permitted to borrow a portion of the ADP percentages and apply them to the ASC percentages. The borrowing method is only allowed if, following any necessary corrective action, the plan passes the ADP test using the Standard Method.

Under the original test, the ADP test failed. When the borrowing method was used the report showed the ADP test passed. However, the correction part of the test still shows the ADP test failed with corrections. How are you able to borrow from the ADP test if the test fails? By borrowing from the ADP test are the refunds for the ACP test lower?


ASC will put the ADP in a passing position by calculating necessary returns or QNECs and then borrow to the ACP test. This will make the ACP refunds lower to HCEs.