Basic and Alternate Section 401(m) Tests

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

According to the alternate 401(m) test, the ACP _HCE cannot exceed the ACP _NHCE by more than a certain percentage, provided that the difference between the ACP _HCE and the ACP _NHCE does not exceed a certain percentage point.