Besides the coverage testing requirements that make sure a reasonable number of NHCEs are participating in relation to the number of participating HCEs, each type of qualified retirement plan has specified nondiscrimination tests that must be applied. A qualified retirement plan risks losing its qualified retirement plan status if it is found to discriminate in favor of Highly Compensated Employees.
Generally speaking, there are two distinct tests that must be met in this regard. Nondiscrimination tests include the ADP and ACP tests for 401(k) plans. One applies to employee deferrals. The second applies to matching employer contributions and employee after-tax contributions.
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