All qualified retirement plans are required to undergo multiple tests every year. These tests are to ensure each plan is compliant with federal and state law. As plan administrators, we perform these tests for our clients. Below are eight of the most common annual tests.

Excess Deferral Testing

Excess deferral testing determines whether any employees who are 401(k) or 403(b) plan participants have made elective deferrals that exceed $23,000 in the 2024 calendar year (or $30,500 if they are aged 50 or older). If an excess deferral has occurred, it must be corrected.

Actual Deferral Percentage (ADP) Test

Another nondiscrimination test, the ADP test determines whether the average contributions for highly paid employees exceeds those of the average deferral of the non-highly paid employees by more than acceptable limits.

Actual Contribution Percentage (ACP) Test

Similar to, but separate from, the ADP test, the ACP test examines whether matching contributions made by the employer meet established nondiscrimination thresholds.

Top-Heavy Testing

A top-heavy plan is one in which  60 percent or more of the benefits are attributed to key employees. Key employees are defined as individuals who have major ownership in or are officers of the company. Top-heavy testing determines if a plan fits this definition. If so, non-key employees are generally entitled to certain minimum contributions and a minimum top-heavy vesting schedule.

Coverage Testing

If a plan doesn’t benefit a specified percentage of non-key employees, it may be deemed discriminatory. Coverage testing is an audit to determine the percentage of these employees receiving the plan benefits.

Annual Additions Limit

In total, the annual allocations a participant received may not exceed $70,000 or 100% of their pay in 2024, whichever is lesser. These allocations include employee deferrals, employer contributions, and forfeiture reallocations. This test is to ensure this limit is not exceeded.

Nondiscrimination in Benefits, Rights, and Features

Through plan benefits, actual contributions, features, rights, and definitions of pay used in allocation contributions, a plan may not unduly favor highly paid employees. Additionally, its definition of “compensation” may not be discriminatory. This test examines this aspect of a plan’s contributions.  

Deduction Limits

In this test, we determine whether the employer’s deduction limits for each fiscal year is compliant with applicable law.

Need Help with your Qualified Retirement Plan? Contact Intac FuturePlan.

If you have any further questions about any of these tests or other matters related to your qualified plan, contact your Intac FuturePlan consultant.