What must 401(k) plans include to help mitigate compliance testing responsibilities?

To help mitigate compliance testing responsibilities, 401(k) plans benefit significantly from including formulaic plan matches or non-elective contributions. These structures provide a predictable contribution formula that can simplify the determination of whether the plan is in compliance with various nondiscrimination tests, such as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests.

Having formulaic matching or non-elective contributions helps ensure that contributions are equitable across different income levels and reduces the likelihood of discrimination against lower-paid employees. Such contributions are structured in a way that everyone receives a mathematically defined benefit, which strengthens the plan’s compliance standing and makes it easier to pass necessary tests. This is particularly important for plans that want to maintain their tax-advantaged status and avoid penalties.

In contrast, high fees for managing the plan do not directly address compliance testing and may actually deter participation. Liberal loan provisions can enhance participant satisfaction but do not influence compliance testing in the same manner. A diverse array of investment options may improve participant choice and engagement but does not directly impact compliance with nondiscrimination requirements.