The document discusses ways for retirement plans to pass non-discrimination testing which ensures that highly compensated employees' (HCE) contributions are not disproportionately higher than non-highly compensated employees' (NHCE) contributions. It provides several options to increase NHCE deferral percentages such as education, automatic enrollment, qualified matching contributions, and qualified non-elective contributions. It also discusses using a qualified separate line of business or a safe harbor plan with mandatory employer contributions as ways to avoid ADP/ACP testing altogether. Compensation testing is also briefly covered which examines excluded compensation items for nondiscrimination.

1. A SIMPLE WAY TO MEET THE
NON-DISCRIMINATION
TESTING
GAIN CONTROL berrydunn.com

2. ADP/ACP TESTING
• Most common test that fails
• Highly Compensated Employees (HCEs) limited by the
contributions made by Nonhighly Compensated Employees
(NHCEs)
− e.g., HCEs contributed $16,500 but not limited to $12,000
after testing
− OPTIONS:
− Return contribution to HCE
− Qualified Non-elective Contribution for NHCEs
GAIN CONTROL

3. ADP/ACP TESTING
How to increase NHCE deferral %?
• Education
• Top 20% election for HCEs
• Bifurcate testing?
• Qualified Matching Contributions
• Automatic Enrollment
GAIN CONTROL

4. ADP/ACP TESTING
Consider a Qualified Separate Line of Business
(QSLOB)
• Must have lines of business
• Separate organizational unit
• Separate financial accountability
• Separate workforce
• Separate management
• Must have at least 50 employees
• Administrative scrutiny
GAIN CONTROL

5. ADP/ACP TESTING
Qualified Automatic
Contribution
Safe Harbor Plan Arrangement
• Employer Contribution • Employer Contribution
− Match: $1 per $1 − Match: $1 per $1
deferred on first 3%, deferred on first 1%,
$.50 per $1 on next 2% $.50 per $1 on next 5%
(total = 4%) (total = 3.5%)
OR OR
− Nonelective: 3% of − Nonelective: 3% of
compensation compensation
• 100% vesting − 100% vesting after 2
years!
− Automatic enrollment!
GAIN CONTROL

6. ADP/ACP TESTING
• Benefits of Safe Harbor or QACA rules:
− No ADP testing and, in most cases, no ACP
− Nonelective contribution can be used towards class
allocation testing
• Drawbacks
− Contribution locked in for entire year
− Notice requirement
GAIN CONTROL

7. COMPENSATION TESTING
• Only applies if items of compensation are excluded
e.g., overtime, shift differential, bonuses
• Commonly referred to as the 414(s) test
HCE compensation ratio compared to NHCE compensation ratio
GAIN CONTROL