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ARTICLE · 22 JANUARY 2015

What You Need To Know About ADP/ACP Discrimination Testing

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Every year plan sponsors must test 401(k) plans to ensure that the contributions made by and for rank-and-file employees, are reasonably proportional to contributions made for highly-compensated employees.

United StatesEmployment and HR
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Every year plan sponsors must test 401(k) plans to ensure that the contributions made by and for rank-and-file employees, also known as non-highly compensated employees (NHCEs), are reasonably proportional to contributions made for highly-compensated employees (HCEs), generally a company's owners and managers. As the NHCEs save more for retirement, the rules allow HCEs to defer more (up to limits). All employers should understand the tests — known as the actual deferral percentage (ADP) test and the actual contribution percentage (ACP) test.

Testing Formulas

Generally, plans cannot disproportionately benefit HCEs. For 2014, plan participants are considered HCEs if:

  • Their compensation in 2013 or 2014 was more than $115,000. For 2015 this limit is $120,000; or

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