FAQ 582: ADP--Borrowing after failing ADP?

Problem: 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?

Solution: The system corrects a failing test as follows: 1. Correct a failing ADP by user-chosen method - usually returns to HCEs (it doesn't recharacterize as voluntary employee contributions currently). 2. Determine ATM on returned deferrals to subtract attributable match from matching ACP amounts. 3. Shows a passing ADP (assuming HCE returns will correct) for borrowing to ACP. 4. Corrects ACP (if borrowing doesn't make it pass). What your Borrowing page is reflecting is that the ADP test was “put in a passing state” by making the corrective distributions. And it was put in enough of a passing state to be able to borrow a little bit to help the ACP test - After the corrective distribution the new ADP percents were 9.67% and 7.67%, so by moving 5.67% that puts the ADP at 4.00% and 2.00% which is still passing. So the 5.67% can be moved to the ACP test. Without borrowing, the HCE's ACP average would have to be brought down 1.08%; however by borrowing the 5.67%, the HCE's average only has to be brought down by .92% (which results in a lower ACP corrective distribution).