If a 401(k) safe harbor plan has been in existence for three years, and at the end of 2008, the safe harbor is being amended out of the plan for the 2009 plan year, should the plan use current or prior testing for 2009?  If it can be prior year testing, is the prior year based on the actual nonhighly compensated employees (NHCE) ADP, or can the "assumed" 3% for NHCE’s be used?
Rev. 01/16/09, E-mail Alert 2009-1

For each year that a plan is safe harbored it is considered to be on the current year testing method. If the plan has satisfied the five-year rule as of the year it is changing from safe harbor to non-safe harbor, it may use the prior year testing method. Since all the years since the plan was started are current year testing, the plan may switch to prior year testing, even though there are not five years yet.

As to the prior year, it may not be calculated at the 3% assumed rate because that is available only for the very first plan year that the 401(k) plan is in existence.