401(k) Plan Testing Definition

Term Definition
401(k) plans testing refers to the tests carried out to ensure the nondiscriminatory nature of the defined contribution retirement savings plans. Among several types of tests, ADP or ACP is the most common.

Extended Definition
401(k) plans are a means to help people, particularly those belonging to lower and middle income groups, save for retirement. Nondiscrimination rules were established to ensure that the plans do not favor HCEs (highly compensated employees) over NHCEs (non-highly compensated employees). A majority of 401(k) plans are subject to nondiscrimination testing.

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