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  1. Actual Deferral Percentage (ADP) Test — The ADP compares the average elective deferrals made by Highly Compensated Employees against the average elective deferrals of the Non-Highly Compensated Employees.

  2. Actual Percentage Contribution (ACP) Test — The ACP compares the average matching contributions made for Highly Compensated Employees against the average matching contributions made for the Non-Highly Compensated Employees.

A 401(k) plan may satisfy the ADP or ACP test in one of three ways:

  1. By annually meeting the requirements of the ADP or ACP test itself;
  2. Satisfying the design requirements of a SIMPLE 401(k) plan; or
  3. Satisfying the design requirements of a Safe Harbor 401(k) plan.

Both the ADP and ACP tests provide two different methods of compliance — the current year testing method, and the prior year testing method.

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