A 401k used some elective deferrals to pass the 1997 ACP test. The '97 ADP/ACP test was completed on current yr data. Now for the '98 ADP test, the plan would like to test on prior data. Is the NHCE ADP% before the "shift" of the elective deferrals to ACP used? Or is the NHCE ADP % after the "shift" of elective deferrals to ACP used?

Reading Notice 98-1 it leads ms to believe that I should use the after shift NHCE ADP %.

Any help would be appreciated.

I am in agreement with your reading of 98-1. You should use the after-shift NHCE number for your 1998 ADP.

Unfortunately, you have to use the before shift NHCE number for your 1998 ACP.

Go figure.

You may use the post-shifted ACP percentage for 1998 - there is a transitional rule in notice 98-1 for 1997 and 1998 years.

We have had debate here about this. Can somebody confirm the conclusions in the following scenarios? These all relate to the transition year, for years starting after 12/31/98 when changing from current year data to prior year. Also, except for these Q&A, has anybody run this by the drafters of 98-1, since it doesn't seem to make sense?

Assume 2000 used current year data; 2001 uses prior year data.

1.Year 2000 NHCE ADP (pre-shift) = 3.00
Year 2000 NHCE ACP (pre-shift) = 1.00
Year 2000 NHCE ADP (post-shift) = 2.80
Year 2000 NHCE ACP (post-shift) = 1.20

So, for 2001, the NHCE ADP would be 2.80 and the ACP would be 1.00.

2.Year 2000 NHCE ADP (pre-QNEC) = 2.00
Year 2000 NHCE ADP (post-QNEC) = 3.00
(QNECs were made only to satisfy ADP)

So, for 2001, the NHCE ADP would be 2.00.

Thanks for any help.