Could someone tell me their admin procedure when a 401(k) fails the ADP - do you reduce the deferral to the amount given on the first ADP report (where it shows it fails) and then include in your report to the client the RTS report showing it failed? I just ran across I think a first for me where I noticed there continually was a reduction in the ADP (a loop)and was wondering if the loop would continue on so the ADP would never pass? Appreciate any insight into this. Thanks.

Cathy,
We reduce by the amount shown and include the original test. We then include a memo in the report stating that the test failed but has been corrected. The "loop" will continue for along time due to the "new" rules for returning excess.

Just be sure to document the correction completely so that there will be no question should the plan need an audit.

thanks for assuring me that I'm doing what someone else is doing....putting the failed report with the rest of their annual report. Just looks odd even though the test result states it's been corrected (using I think font size 3!)