CHAPTER 11 401(k) AND 401(m) TESTING

The law prescribes special nondiscrimination tests that must be satisfied by a section 401(k) arrangement and by a section 401(m) arrangement. These tests are known as the ADP test (for 401(k) arrangements) and the ACP test (for 401(m) arrangements). The contributions subject to the ADP test or ACP test are considered to satisfy IRC §401(a)(4) only if the applicable test is satisfied, unless the contributions are deemed to pass nondiscrimination testing because of certain special rules. This chapter explains the ADP and ACP tests, and how to correct violations. Limitations on elective deferrals under IRC §401(a)(30) and IRC §402