An employer is testing the 1998 plan year for the ACP test and would like to consider using part of the elective contributions made to the Plan to pass ACP, as is permitted under 1.401(m)-1(B)(5). The employer uses prior year testing. Is there a way to use elective deferrals under prior year testing? Which deferrals are used for NHCEs? Notice 98-1 only sets forth rules for using QMACs and QNECs.

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GBM

I don't think it matters.

suppose my hce this year is 6 and 3.
my nhce for last year was 5 and 1.4
(ADP and ACP)

using elective deferrals isn't physically done, its really on paper, so I simply 'shift' 1 point from adp to acp for the NHCEs and pass the test.
or looked at from another point of view, even though my values last year were 5 and 1.4, i didn't use those in last years test. so technically last year I had 4 and 2.4 or any other type of shift. I don't know of anything that says I have to announce ahead of time what my shift will be. (but I have been wrong before, so I have no cite to give you)

I suppose if last year you used current year testing method, you might have problems, assuming you used 5 and 1.4 to pass test last year. I'm not sure about that scenario.

Does anyone have any updates to this discussion?
I am looking at "shifting" the prior year NHCE percentages. I'm only failing the MUA test. Is this permissable? Last year's tests also used the prior year percentages. Would the answer be different if last year's tests were based on current year NHCE percentages?

the answer is definitely different if last year used current year method - at least that is my understanding - you are not allowed to 'shift' under those circumstances.
if last year used prior then simply compare this years HCE to last years NHCE. If you pass the 2 test for ADP, you can then shift any or all (for both HCE and NHCE) to the ACP test. as long as you pass pass ADP before AND after the shift you are ok.