EP Compliance Trends and Tips - Compliance Activities - Applicable Issues - Discrimination
In The Employee Contributions section of this Trends and Tips web site, there was a discussion of the trends found with salary deferrals. This section of the web site will start with salary deferrals as well. Examinations have found that nondiscrimination tests with relation to these elective deferrals are not being passed when tested. The purpose of the test is to ensure highly compensated employees' deferrals cannot be greater than deferrals by non-highly compensated employees. There are many reasons why these tests fail. Some include misclassification of who is a highly compensated employee and math errors. When the test fails, corrections must take place to pass the nondiscrimination tests.
Another test that plans need to run is called a top-heavy test. If this test fails, employers must make an additional contribution. Examinations of plans indicate that the tests are not being completed and/or the additional contributions are not being made after the test is run. Administrators need to complete this test and inform the employer if additional contributions are needed.