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401k Plans
401(k) deferrals by highly compensated employees are limited based on the actual deferrals of non-highly compensated employees.

The 401(k) and match non-discrimination tests are commonly known as the average deferral percentage (ADP) and average contribution percentage (ACP) tests, respectively.

A highly compensated employee (HCE) is any employee who:
  1. owned more than 5% of the employer in the current or prior plan year;
  2. is a family member of the 5% owners; or
  3. earned more than $120,000 in the preceding plan year.
A non-highly compensated employee (NHCE) is any employee who is not a HCE.

Generally, the average 401(k) deferral of all HCEs is limited to 2% points higher than the average 401(k) deferral of all NHCEs. For example:

  Average 401(k) Deferral of NHCEs    Average Deferral of HCEs limited to:  
0%0%
2%4%
4%6%
8%10%


The non-discrimination test that applies to matching contributions is the same as described above for 401(k) deferrals.

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