Actual Contribution Percentage (ACP) Test

Definition

A test that must be performed by plan administrators to determine whether matching and after-tax contributions are skewed in favor of highly compensated employees (HCE) in a discriminatory manner

Referring Cite

IRC §401(m); Treas Reg §1.401(m)-2

Additional Helpful Information

If the plan fails the ACP test, corrective steps can be taken, which include the following:

• Refunding amounts to HCEs
• Recharacterizing salary deferral contributions as after-tax contributions
• Contributing additional amounts for non-highly compensated employees

An employer/plan sponsor may avoid the ACP test by adopting and abiding by the safe harbor provisions as described in IRS Notices 98-52 and 2000-3

Related Articles Tutorial or Other Content