Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Nondiscrimination testing is performed on qualified plans to ensure that all participants benefit fairly. In this article we will explain the top-heavy Test, corrective measures and it’s deadlines:
- Plans that primarily benefit key employees are considered top-heavy.
- Top-heavy plans are subject to minimum contribution requirements.
Correction of the ADP or ACP tests includes allocating a Qualified Non Elective Contribution (QNEC) and making corrective distributions to the Highly Compensated Employees (HCEs). Both tests are due on March 15th of the year following the plans’ year-end to avoid a 10% excise tax. When in doubt, please ask your service provider to explain all questions you may have on these tests.
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