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What Happens When Our ACP and ADP Test Fails

Matching contributions and after-tax employee contributions must be tested under the Actual Contribution Percentage (ACP) test. The test is similar to the ADP test discussed in the previous section.

As we shall see, 401(k) plan testing can be a headache for human resource managers. But, it is the correction of 401(k) test failures that often makes them sick.

What To Do?
If you want to avoid getting headaches and seasickness due to your 401(k) plan’s testing failures and corrections, consider adopting a safe-harbor design. Otherwise, test early and test often.

Revised July 18, 2005

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last updated on Wednesday, January 02, 2008 11:23 AM