Retirement plans are subject to annual compliance testing as defined by the IRS. Testing may include Top Heavy, ADP/ACP, compensation, coverage (either plan or contribution allocation) and general nondiscrimination testing. Failing a compliance test has adverse consequences, making it important that all parties (including the plan sponsor) be familiar with testing requirements.

The first step in compliance testing is to apply the plan's participation requirements are applied to the employee census to determine who is eligible to participate (this is called coverage testing). The results are then subject to testing in order to prevent plan discrimination in favor of the highly compensated group (this is called nondiscrimination testing).

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