Sponsors of certain defined contribution plans, namely, 401(k) and 403(b) plans, need to be aware that these plans are subject to non-discrimination tests known as the Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test. The deadline to conduct these tests is March 15, 2014 - O'Connor Davies - NY CPA Firm - New York, 401k auditor

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Employee Benefit Plan Newsletter
March 15, 2014 Deadline for
Non-Discrimination Testing
Louis F. LiBrandi, Principal
Sponsors of certain defined contribution plans, namely, 401(k) and 403(b) plans, need to be
aware that these plans are subject to non-discrimination tests known as the Actual Deferral
Percentage (ADP) test and the Actual Contribution Percentage (ACP) test. [Section 403(b)
plans are only required to perform the ACP test since these plans are subject to the Universal
Availability rule, whereby the employer generally must make the plan available to all
employees.] Further, safe harbor plans are not required to perform these tests, provided they
meet certain criteria in terms of employer contribution formulas and vesting.
Louis F. LiBrandi
Principal
llibrandi@odpkf.com
212.286.2600
Under ERISA, non-safe harbor plans must perform the ADP and/or ACP test annually in order
to compare the average deferral rate and average contribution rate of Highly Compensated
Employees (HCEs) versus Non-Highly Compensated Employees (NHCEs). HCEs are described
as those employees with greater than 5% ownership in the entity sponsoring the plan or
earning compensation at or above a stated amount. For purposes of testing the 2013 plan
year, the compensation amount is $115,000. These tests are required in order to ensure that
a plan does not unduly benefit HCEs at the expense of other employees.
Testing should be completed by 2-½ months after the close of the plan year. For 2013
calendar year plans, this means the testing deadline is March 15, 2014. Failure to timely test
and make any necessary corrections for the plan creates qualification issues and a potential
10% excise tax which is reported and paid to the IRS. Typically, corrections to the ADP test
require making refunds of deferral amounts to the HCEs, or the HCEs forfeiting portions of
the employer matching contribution.
Recently, O’Connor Davies was asked to review a non-discrimination test performed by an
outside party for a client’s 401(k) plan. Our review identified misclassified employees. This
affected the refunds which needed to be made to the HCEs and lowered those refunds by
over $20,000.
The Employee Benefit Services Group at O’Connor Davies, LLP has extensive experience in the
preparation and review of these and other non-discrimination tests (e.g., coverage and topheavy testing). Plan sponsors in need of this service should contact Louis LiBrandi
atllibrandi@odpkf.com or 212-286-2600.
About O’Connor Davies
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history of serving clients both domestically and internationally and providing specialized professional
services of the highest quality. With roots tracing to 1891, seven offices located in New York, New

2. Jersey and Connecticut, and approximately 500 professionals including 84 partners, the Firm provides a
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Business and the Westchester and Fairfield County Business Journals.
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