Actual deferral percentage test
Certified Financial Planner glossary · Certified Financial Planner
Definition
A nondiscrimination test comparing the average elective deferral rate of highly compensated employees to that of all other eligible employees.
Actual deferral percentage test in plain English
The owners deferred 8% of pay while the rank-and-file averaged 2%, and now payroll is panicking about refunds. The actual deferral percentage test compares the average elective deferral rate of highly compensated employees to that of all other eligible employees. Fail it and HCEs may face corrective distributions or contributions. Do not confuse ADP (elective deferrals) with ACP (matching and after-tax). Read which contribution type the stem is testing.
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