Basic and Alternate Section 401(k) Tests

To be considered nondiscriminatory, a 401(k) plan must meet one of two tests:

• The basic Actual Deferral Percentage (ADP) test for Section 401(k) states that the average ADP for highly compensated employees (ADP _HCE) cannot be more than a certain percentage of the average ADP for employees who are not highly compensated (ADP _NHCE).

• The alternate ADP test requires that the ADP _HCE cannot exceed the ADP _NHCE by more than a certain percentage, provided that the difference between the ADP _HCE and the ADP _NHCE does not exceed a certain percentage point.