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Marietta Marine, Inc., has a traditional Section 401(k) plan. The actual deferral percentage (ADP) for all...

Marietta Marine, Inc., has a traditional Section 401(k) plan. The actual deferral percentage (ADP) for all eligible non-highly compensated employees (non-HCEs) is 4%. What is the maximum ADP for the eligible highly compensated employees (HCEs) group at Marietta Marine?c

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Answer #1

The average contribution of HCEs can be no more than 125% of the average contribution of the NHCEs. As per given quetion if the NHCE average contribution is 4%, the HCE average contribution can be no more than 5%.

OR

2. The average HCE contribution does not exceed the average NHCE contribution plus 2%, or is no more than twice the NHCE rate, whichever is less. For example, if the NHCE average contribution rate is 4%, to pass the test, the HCE contribution rate can be no more than 6%. That’s because 4% + 2% = 6% and 4% x 2 = 8%. Because 6% is less than 8%, 6% is the maximum HCE contribution rate allowed under this option.

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