how adp and acp tests work
the adp test compares the average salary deferral percentages of highly compensated employees hce to that of non highly compensated employees nhce an hce is any employee who owns more than 5 interest in the company at any time during the current or previous plan year or earned more than 130 000 during the 2020 tax year the adp test takes into account both pre tax deferrals and after tax roth deferrals but no catch up contributions which may be made only by employees age 50 and over to pass the test the adp of the hce may not exceed the adp of the nhce by more than two percentage points in addition the combined contributions of all hces may not be more than two times the percentage of nhce contributions the acp test uses a similar method as the adp test except that it uses matching contributions or employee after tax contributions correcting an adp acp test failure