Correction of ADP and ACP Tests Clause Samples
The Correction of ADP and ACP Tests clause outlines the procedures for addressing failures in the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) nondiscrimination tests required for 401(k) retirement plans. If these tests reveal that contributions made by highly compensated employees exceed permissible limits compared to those of other employees, the clause specifies corrective actions such as refunding excess contributions or making additional contributions for non-highly compensated employees. This clause ensures the plan maintains its tax-qualified status by preventing discrimination in favor of higher-paid employees and provides a clear process for rectifying testing failures.
Correction of ADP and ACP Tests. If the ADP or ACP Tests are not met, the Administrator shall determine, no later than the end of the next Plan Year, a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce the ADP and/or ACP for the HCE group by a sufficient amount to meet the ADP and ACP Tests. ADP and/or ACP corrections shall be made in accordance with the leveling method as described below.
Correction of ADP and ACP Tests. If the ADP or ACP Tests are not met, the Administrator shall determine, no later than the end of the next Plan Year, a maximum percentage to be used in place of the calculated percentage for all HCEs that would reduce the ADP and/or ACP for the HCE Group by a sufficient amount to meet the ADP and ACP Tests. With regard to each HCE whose Deferral percentage and/or Contribution percentage is in excess of the maximum percentage, a dollar amount of excess Deferrals and/or excess Contributions shall then be determined by (i) subtracting the product of such maximum percentage for the ADP and the HCE's Compensation from the HCE's actual Deferrals and (ii) subtracting the product of such maximum percentage for the ACP and the HCE's Compensation from the HCE's actual Contributions. Such amounts shall then be aggregated to determine the total dollar amount of excess Deferrals and/or excess Contributions. ADP and/or ACP corrections shall be made in accordance with the leveling method as described below.
Correction of ADP and ACP Tests. For Plan Years commencing after December 31, 1996, for each Plan Year, if the ADP or ACP Tests are not met, the Administrator shall determine, no later than