Coordinate ADP or ACP corrections with payroll and the custodian

A failed ADP or ACP test first needs a review of the population and amounts tested. Obtain the administrator's results, the census version and the plan provisions used. IRS guidance calls for checking employee classifications, compensation definitions and the chosen testing method. Incorrect data may require the administrator to rerun the test.

Reconcile the census to payroll and ownership records, including eligible employees who made no deferrals. Give the administrator information needed to assess highly compensated employee status and ownership attribution. A payroll label such as manager is not a reliable substitute for the applicable classification rules.

The ADP and ACP tests use different contribution categories. Provide elective deferrals, matching contributions and employee after-tax contributions in distinct fields, with catch-up amounts identified for the administrator's treatment. Ask the recordkeeper to explain any category that combines transactions the testing calculation needs separately.

Confirm whether the plan uses the permitted current-year or prior-year testing approach for the relevant population. Retain the adopted provision and the supporting compensation data. A payroll export covering the latest calendar year may not contain every input the administrator needs for the plan's test.

Document corrections already made during the year, including rejected contributions and changes after a provider migration. Give the tester both the original activity and the corrected totals. Otherwise an earlier remedy can be omitted or counted twice when the annual census is rebuilt.

If the corrected test still fails, ask the plan adviser to select the permitted remedy and applicable timetable. The IRS describes correction methods and timing consequences, including circumstances involving distributions or employer contributions. Do not calculate a repayment from a remembered percentage or assume every test failure has the same remedy.

The approved schedule should identify each affected participant, principal amounts, applicable earnings and the transaction the custodian must perform. Separate any employer funding from amounts distributed from participant accounts. Obtain the administrator's instructions for tax reporting and participant communications before payroll changes historical wage records.

For an illustrative handoff, the administrator approves a corrective distribution while payroll receives a request called refund. Clarify who pays the participant and which reporting process applies. An ordinary negative payroll deduction could create a second payment or alter wages without executing the required plan correction.

Compare the custodian's completed transactions with the approved participant schedule. Review rejected payments, closed accounts and former employees separately. A total transfer agreeing with the request does not show that each participant's correction reached the right account or recipient.

Obtain the final test result or correction confirmation from the administrator. Retain any required filing, tax-payment and participant-statement instructions with the completed transaction evidence. Track those tasks individually when different providers are responsible, and preserve unresolved items until the plan adviser approves their treatment.

Give payroll the final data changes that should carry into future testing. If the problem came from an ownership field or compensation mapping, correct that source and verify the next census export. Keep the reviewed test, method decision and settlement record together for the plan's annual reporting and audit work.