actual contribution percentage test (ACP test)

Definition

A test used to determine whether company contributions to a 401K retirement plan favor highly compensated employees. The purpose of the test is to determine whether all participants are benefiting equally from the plan. If a plan fails the test, it will no longer be considered a qualified plan by the IRS.

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You should try and figure out a way to make an actual contribution percentage test tell you the best way to proceed.

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The actual contribution percentage test was a fairness test to ensure that low wage employees were benefiting equally as the higher paid employees.

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In order to continue to offer their 401k plan to their employees, the company had to make sure they could pass an actual contribution percentage test.

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