FAQ 648: ADP--Combined HCE return/catchup and QNEC

Problem: We have a 401(k) plan that is failing the ADP testing. The client wants to contribute a QNEC instead of taking deferral refunds out of owners' accounts. Three of the owners deferred $20,000. Do we need to run a report or calculation to classify $5,000 as deferral catch-up for each owner? When we run the QNEC calculation the test is not reducing the HCE % to account for the catch-up contributions.

Solution: To do a combination return/catchup and QNEC, in the ADP Corrections setup screen, select "Prorata QNEC", then enter a "Maximum QNEC/QMAC" of 5000 in that same screen. The system will then allocate the 5000 and return/catchup the remainder necessary to pass the test. You need to be sure that the QNEC source specs are set up with the correct Groups/Hours as well as the "Status Codes for QNEC" in the ADP setup. If those are correct, and some employees are still missing from the allocation, look at the other "normal" allocation things like comp, active status, hours, excess 415, etc...