As outlined in our nondiscrimination testing overview, when HCE contributions or Key employee account balances are disproportionate relative to NHCE contributions or non-Key employee balances, corrective action may be required. Corrective action may include 1. refunding deferrals made by HCEs or 2. an employer contribution to non-HCE or non-Key employees or a combination of the two. You can read more about the corrective actions here for the ADP, ACP, and Top Heavy tests.
What if I receive a refund?
Frequently, corrections for ADP and ACP testing take the form of refunds to HCEs with those HCEs who contributed higher dollar amounts receiving larger refunds.
However, don’t be concerned. Refunds to HCEs and owners are routine and Guideline tries to make this process as smooth and transparent as possible. You can learn more about ADP/ACP refunds here.