A Simple Way to Meet the Non-Discrimination Testing
- 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