16.5 Shifting Techniques: Moving Contributions Between the ADP and ACP Tests

A Correction That Costs Nothing

Every other ADP/ACP correction either takes money away from HCEs (refunds) or requires the employer to write a check (QNECs and QMACs). Shifting does neither. It rearranges which contributions are counted in which test, using amounts already in the plan. When it works, it is always the first choice.

What May Be Shifted

1. Elective Deferrals: ADP → ACP

Treas. Reg. §1.401(m)-2(a)(6)(ii) permits elective deferrals to be included in the ACP test. Two conditions:

1. The ADP test must be satisfied before the shift — using all deferrals, including the ones about to be moved; and
2. The ADP test must still be satisfied after the shift — that is, after the shifted deferrals are removed from the ADP calculation.

Both conditions. This is the mechanism's most important limitation and its most tested feature: shifting cannot rescue a failing ADP test. If the ADP test fails, there is nothing to shift from.

Deferrals only move in one direction — from ADP into ACP. There is no reverse shift of matching contributions into the ADP test.

2. QNECs and QMACs: Either Test, Never Both

A QNEC allocated to NHCEs can be counted in the ADP test to raise the NHCE ADP, or in the ACP test to raise the NHCE ACP, at the administrator's election — but a given dollar is used once. Double-counting is the single most common shifting error.

Note also that a QMAC used in the ADP test is removed from the ACP test entirely, and that the safe harbor contributions used to satisfy an ADP safe harbor cannot be recycled into ACP testing.

The Ordering of Operations

Shifting fits into the testing sequence at a specific point:

1. Determine the testing population and any disaggregation.
2. Calculate the raw ADP and ACP results.
3. Confirm the ADP test passes on the raw numbers.
4. Apply the shift, moving specific participant-level deferrals into the ACP calculation.
5. Re-run the ADP test without the shifted amounts and confirm it still passes.
6. Re-run the ACP test with the shifted amounts.
7. Only then determine corrections on whatever still fails.

Step 5 is where plans get caught: an aggressive shift that fixes the ACP test can push the ADP test into failure, which invalidates the shift entirely.

Worked Example: Meridian Composites, 2026 Plan Year

Populations: 5 HCEs, 45 NHCEs. Prior-year testing is not elected; the plan uses current-year testing.

Raw test results:

Without intervention, the plan must refund excess aggregate contributions to HCEs. Instead, consider a shift.

Headroom analysis. The ADP test passes with the HCE ADP at 6.00% against a 7.20% ceiling. But shifting removes deferrals from the NHCE side to help the ACP test — which lowers the NHCE ADP and therefore lowers the ADP ceiling. So the question is how much NHCE deferral can be removed before the ADP test breaks.

The ADP test still passes as long as the HCE ADP of 6.00% stays at or below the NHCE ADP plus 2.00%. That requires the post-shift NHCE ADP ≥ 4.00%. So up to 1.20 percentage points of NHCE deferrals may be shifted.

Applying a 1.00 percentage point shift (leaving a margin):

Both tests now pass. No refunds, no QNEC, no employer contribution. The plan documents which specific NHCE participants' deferrals were shifted and in what amounts, since the shift must be traceable to participant-level dollars rather than expressed only as an aggregate percentage.

Note the direction of the arithmetic. Shifting NHCE deferrals into the ACP test raises the NHCE ACP (helping the failing test) and lowers the NHCE ADP (consuming headroom in the passing test). You are spending margin in one test to buy margin in the other. Shifting HCE deferrals would be counterproductive — it would raise the HCE ACP, which is the number already too high.

When Shifting Will Not Help

In those cases the administrator returns to the ordinary correction hierarchy: corrective distributions, QNECs or QMACs, or recharacterization as catch-up.

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Common ASPPA QKA Exam Traps

• Trap 1 — Shifting to fix a failing ADP test. The ADP test must pass both before and after; it can never be the beneficiary.
• Trap 2 — Shifting matching contributions into the ADP test. Deferrals move ADP → ACP only. Only QNECs and QMACs are usable in either test.
• Trap 3 — Counting a QNEC in both tests. A dollar is used once.
• Trap 4 — Forgetting that shifting lowers the NHCE ADP. Removing NHCE deferrals shrinks the ADP ceiling; that consumed headroom is the cost of the technique.
• Trap 5 — Shifting HCE deferrals. That worsens the ACP test rather than helping it.
• Trap 6 — Failing to identify participant-level amounts. The shift must be traceable to specific participants' deferrals.