Plan Sponsor’s Guide to Nondiscrimination Testing

This guide outlines the requirements for nondiscrimination testing (NDT) that all qualified plans must comply with under the Internal Revenue Code (IRC). It describes the testing methodologies and processes that plan sponsors must follow to ensure compliance and avoid penalties or disqualification of the plan. The document details various tests, including the Actual Deferral Percentage (ADP) Test and the Actual Contribution Percentage (ACP) Test, which compare contributions of highly compensated employees (HCEs) to non-highly compensated employees (NHCEs). Additionally, it explains the importance of maintaining accurate records of test results for IRS audits and highlights the potential consequences of failing to meet testing requirements. The guide also includes information on correcting test failures and preventing future issues, as well as a section addressing frequently asked questions related to nondiscrimination testing.