As a third party administrator, we have clients that request mid-year testing in order to project results for year-end testing. If you are only considering this for projected testing, the following points should be taken into consideration:
- We have noticed that, for nearly all of our clients, preliminary deferral discrimination testing has not been helpful. Since amounts are estimated and projected through the end of the year, there is a very large possibility of census changes so that the results cannot be relied upon fully.
- In the event we project a failure, we wouldn’t recommend that you have your highly-compensated employees (HCEs) stop participating because:
- As mentioned above, the numbers can change; and
- Even if the test were to fail, there are options available (such as a QNEC contribution) that could be explored before resorting to having funds returned to HCEs.
- In either case, the HCEs cannot put in any additional contributions after year-end towards the previous year.
- In the event we project a passing test, that too doesn’t guarantee a passing result at year-end.