For applications submitted to conform to the 2020 RA List

Employee

Benefit

Plans

Explanation No. 12

Section 401(k) 

Requirements

Note:

Plans submitted during the 2020 Required Amendment List 

submission period must satisfy the applicable changes in 

plan qualification requirements listed in Section IV of Notice 

2020-83, 2020-50 I.R.B. 1597 (the 2020 RA List).

This publication contains copies of:

Form 9002, Worksheet 12 

Form 9417, Deficiency Checksheet 12

These forms are included as examples only and should not 

be completed and returned to the Internal Revenue Service.

Publication 7335 (Rev. 6-2021) Catalog Number 49200Y Department of the Treasury Internal Revenue Service www.irs.gov

The technical principles in this publication may be changed by 

future regulations or guidelines.

The purpose of Worksheet Number 12 (Form 9002) and this 

explanation is to identify major problems that relate to plans 

that include a cash or deferred arrangement.

Generally, a “Yes” answer to a question on the worksheet 

indicates a favorable conclusion, while a “No” answer signals 

a problem concerning qualification of the arrangement and/or 

plan. This rule may be altered by specific instructions for a 

given question. Please explain any “No” answer in the space 

provided on the worksheet

The sections cited at the end of each paragraph of this 

explanation are, except as otherwise noted, to the Internal 

Revenue Code and the final Income Tax Regulations.
Page 2 For applications submitted to conform to the 2020 RA List

I. Applicability

Section 401(k) of the Code is the exclusive method of deferring compensation on an elective, pre-tax basis under a qualified plan. This 

section sets forth the requirements that a cash or deferred arrangement (CODA) must satisfy in order to be a qualified arrangement. These 

requirements include a special nondiscrimination test called the actual deferral percentage or ADP test. If the requirements of section 401(k) 

are met, contributions under a qualified plan that are made pursuant to an employee’s deferral election are not taxed to the employee at the 

time contributed to the plan or when the amounts would have been available to the employee in cash had there been no deferral election, 

but are treated as employer contributions to the plan. Roth elective contributions (sometimes called designated Roth contributions), which 

are permitted in 401(k) plans beginning in 2006, also must meet the requirements applicable to traditional elective contributions (pre-tax 

elective contributions), but Roth elective contributions are not excluded from the employee’s gross income.

401(k), 402(e)(3), 402A

1.401(k)-1(a)(4)

Line a. Existence of a Cash or Deferred Arrangement (CODA). A plan includes a CODA if it includes any arrangement under which an 

eligible employee may make a cash or deferred election to have the employer either contribute an amount to the plan’s trust or to pay 

the amount to the employee in cash or some other taxable benefit. For example, a CODA would include an arrangement that permits an 

employee to elect to receive cash or to accrue a benefit under a defined benefit plan. (However, see I.b., below.) A cash or deferred election 

is an election (or a modification of an earlier election) that is made at any time permitted by the plan with respect to cash or other amounts 

that are not currently available to the employee and that are not designated or treated as after-tax employee contributions at the time of 

deferral or contribution.

401(k)(2)(A)

1.401(k)-1(a)(2) and (3)

Line b. Plans Which May Include a CODA. CODAs are allowed in profit-sharing plans, stock bonus plans, rural cooperative plans (as 

defined in section 401(k)(7)), and money purchase pension plans that on June 27, 1974 included a CODA (pre-ERISA money purchase 

plans defined in section 401(k)(6)). A plan which is not described in one of these categories and which includes a CODA will not satisfy 

section 401(a). A CODA that is maintained by a state or local government will not be a qualified CODA if the CODA is adopted after May 6, 

1986. CODAs adopted by state and local governments on or before this date will be qualified CODAs if the other requirements of section 

401(k) are met. A CODA adopted by a tax-exempt organization after July 1, 1986 and before January 1, 1997 will not be a qualified CODA.

401(k)(1), (4)(B), (6) and (7))

1.401(k)-1(a)(1) and (e)(4)

II. Contributions

Line a. An election by the participant to defer compensation under a CODA must be in effect before such a deferral may be made and 

generally the contribution must be made after the performance of services with respect to which the contribution is made. Elective deferral 

agreements may be modified at any time permitted by the plan. A one-time irrevocable election to have a specified amount (including no 

amount) contributed to any plan of the employer, made at the time first eligible to participate in any plan of the employer, does not constitute 

a cash or deferred election. Any cash or deferred election must be made before the time at which the amount is currently available to the 

employee, i.e., before the employee may receive the amount. Rev. Ruls. 2009-31, 2009-39 I.R.B. 395, and 2009-32, 2009-39 I.R.B. 398, 

provide guidance on contributing the cash value of unused leave to a CODA. A cash or deferred election does not include an election to 

defer amounts that have become currently available to the employee before the CODA is adopted. A CODA will not be qualified unless the 

amount the employee may defer is available to the employee in cash. For example, a CODA which allows an employee to receive a taxable 

benefit (other than cash) or to have a contribution made to the plan will not be a qualified CODA. A cash or deferred election will not fail 

to be made under a qualified CODA merely because, when an employee fails to make an affirmative election with respect to an amount 

of compensation, that amount is contributed on the employee’s behalf (either as Roth or pre-tax elective contributions or a combination of 

both, as specified in the plan) to a trust (known as an “automatic enrollment” feature, or an “automatic contribution arrangement”), provided 

that the employee had an effective opportunity to elect to receive that amount in cash. A plan that permits Roth elective contributions must 

first allow pre-tax elective contributions. In other words, a plan cannot allow just Roth elective contributions. Roth elective contributions must 

be irrevocably designated as such by the employee before they go into the plan and must be treated by the employer as includible in the 

employee’s wages. Roth elective contributions are treated the same as pre-tax elective contributions for all purposes under the plan, but 

special rollover rules apply to these amounts.

401(k)(2)(A), 402A 

1.401(k)-1(a)(3), (e)(2) and (f)

Line b. Generally, a plan must separately account for elective contributions (i.e., employer contributions resulting from an employee’s 

election to defer under a qualified CODA), and Roth elective contributions must be kept separate from pre-tax elective contributions, as 

well as from all other contributions. This does not mean that the plan must have actual separate accounts but that the plan must have 

some means of allocating and determining gains, losses, withdrawals, etc., separately for each type of contribution. Strict accounting with 

respect to Roth elective contributions is essential because all qualified distributions from Roth elective contribution accounts are completely 

tax-free. The employer must keep track of all amounts going into and out of each employee’s Roth elective contribution account. A Roth 

elective contribution account can accept rollovers from a participant’s other accounts in the same plan through an in-plan Roth rollover.
Page 3 For applications submitted to conform to the 2020 RA List

402A

1.401(k)-1(e)(3) and (f)(2)

Notice 2010-84, 2010-51 I.R.B. 872

Notice 2013-74, 2013-52 I.R.B. 819

Line c. Section 401(a)(30) requires a plan that accepts elective contributions to provide that a participant’s elective contributions for a 

calendar year under the plan and all other plans, contracts and arrangements of the employer will not exceed the limit imposed by section 

402(g) of the Code for the calendar year with or within which the participant’s taxable year begins. However, to avoid disqualification, the 

plan may provide for the distribution of excess deferrals made under the plan or plans of the same employer (or related employers) by no 

later than the first April 15 following the close of the year in which the excess arose. The limit under section 402(g) is adjusted for cost-ofliving increases under section 402(g)(4). Any such adjustments will be in multiples of $500. The limit under section 402(g) is increased by the 

amount of catch-up contributions permitted under section 414(v) for participants aged 50 or over by the end of the taxable year. The dollar 

limit on catch-up contributions is adjusted for cost-of-living increases under section 414(v)(2)(C). Any such adjustments will be in multiples 

of $500. Different limits apply to catch-up contributions under SIMPLE 401(k) plans. Catch-up contributions are elective contributions that 

exceed a statutory or plan limit (in most cases, the 402(g) limit or the ADP limit) but are nevertheless permitted by participants aged 50 and 

over, provided they have the compensation to defer. Catch-up contributions are treated the same as other elective contributions under the 

plan but they are not counted in the ADP test nor as a key employee contribution when determining the contribution required for non-key 

employees in top-heavy years under section 416. See also VII.c.

401(a)(30), 402(g) and 414(v)

1.402(g)-1(e)

1.414(v)-1

III. Coverage And Participation

Line a. Employees eligible under a CODA must satisfy the percentage test of section 410(b)(1)(A), the ratio test of section 410(b)(1)(B), or 

the average benefits test of section 410(b)(1)(C). For purposes of the coverage requirements, all eligible employees under the CODA are 

treated as benefiting under the CODA. The term “eligible employee” means any employee who is directly or indirectly eligible to make a 

cash or deferred election, including an employee who has reached the limit on annual additions under section 415 and an employee whose 

eligibility to make an election has been suspended because of a distribution, loan or an election not to participate in the plan. However, 

an employee who makes a one-time election, upon first becoming eligible under any plan of the employer, not to defer for the duration of 

employment is not considered an eligible employee. For special rules that apply if an employer elects to apply section 410(b)(4)(B) relating 

to the exclusion of certain employees, see Part V, Line b. (i). Finally, for purposes of determining if an arrangement satisfies coverage, the 

aggregation rules discussed under Discrimination apply. (See Part V.) The application for determination should include a demonstration that 

the CODA satisfies the coverage requirements. 

401(k)(3)(A)(i) 

1.401(k)-1(b)(1) and -6

Line b. A qualified CODA may not impose an age or service requirement for participation in the CODA which requires more than one year 

of service or a minimum age greater than 21.

401(k)(2)(D)

IV. Vesting

Line a. Section 401(k)(2)(C) of the Code requires that elective contributions and other contributions that may be treated as elective 

contributions, as described in V. and VI. below, must be nonforfeitable when made to the plan. In order for a contribution to be nonforfeitable 

each participant, regardless of age or service, must immediately be vested in his or her elective contributions. 

401(k)(2)(C)

1.401(k)-1(c)

V. Discrimination

Line a. (i) and (ii). A plan that includes a CODA must provide that the actual deferral percentage (ADP) test set forth in section 401(k)(3)

(A) will be met. A governmental plan (within the meaning of section 414(d)) is treated as satisfying this test, and special rules apply in the 

case of certain collectively bargained plans. Section 401(k)(3) is the exclusive nondiscrimination test applicable to the amount of elective 

contributions under a qualified CODA. A plan with elective contributions under a qualified CODA will satisfy section 401(a)(4) only if the 

amount of elective contributions satisfies section 401(k)(3). A plan subject to section 401(k) is deemed to satisfy the ADP test if it contains, 

and complies in operation with, “SIMPLE” provisions, “Safe Harbor CODA” provisions, or, Qualified Automatic Contribution Arrangement 

(QACA) provisions. SIMPLE provisions are described in sections 401(k)(11) and 401(m)(10) of the Code. (See Part IX.) Safe Harbor 

CODA provisions are described in sections 401(k)(12) and 401(m)(11). (See Part X.) QACA provisions are described in sections 401(k)

(13) and 401(m)(12). (See Part XI). The ADP test compares the average of the actual amounts deferred for the plan year, as a percentage 

of compensation, by the eligible highly compensated employees to the average of the actual amounts deferred, again as a percentage 

of compensation, by the eligible nonhighly compensated employees for the prior plan year. “Catch-up contributions” described in section 

414(v) are ignored for purposes of the ADP test. (See Part II.c.) The plan year being tested is sometimes referred to as the “testing year,” 
Page 4 For applications submitted to conform to the 2020 RA List

and this method of performing the ADP test, the “prior year testing method.” (See explanation VIII.c. for the definition of compensation.) 

The ADP test is computed by first separately calculating the actual deferral ratios (“ADRs”) of each eligible employee and then averaging 

the ratios of all eligible employees in the highly compensated and non-highly compensated groups. The individual ratios as well as the 

group percentages must be calculated to the nearest one-hundredth of one percent. The average percentage deferred by the eligible 

highly compensated employees may not exceed the greater of: 1) 1.25 times the average of the deferral ratios for the eligible nonhighly 

compensated employees for the prior plan year; or, 2) the lesser of a) two times the average of the deferral ratios for the eligible nonhighly 

compensated employees for the prior plan year, or b) two plus the average of the deferral ratios for the eligible nonhighly compensated 

employees for the prior plan year.

Example:

Employee Compensation Deferral ADR ADP

A. $100,000 $6,500 6.50%

B. $90,000 $4,000 4.44% 5.31%

C. $80,000 $4,000 5.00%

D. $20,000 $0 0.00%

E. $10,000 $0 0.00% 3.33%

F. $10.000 $1,000 10.00%

(D, E, and F are nonhighly compensated employees, and the figures shown for them in this table are for the prior plan year. 

All employees are under age 50.) Under the ADP test, the employer must compare the ADP of the eligible highly compensated employees 

(A, B, and C) to the ADP of the eligible nonhighly compensated employees for the prior plan year, using the formulas above to determine 

whether 1) or 2) is met.

1) 3.33 x 1.25=4.16. Since 5.31 is greater than 4.16, Test 1) is not met.

2) 3.33 x 2=6.66, 3.33 + 2=5.33; 5.33 is the lesser of the two. Since 5.31 is less than 5.33, Test 2) is met and the plan passes the 

ADP test.

For the first plan year a plan is subject to section 401(k), the employer can elect, by so providing in the plan, to use either 3 percent as the 

ADP of the nonhighly compensated employees or the ADP for that first plan year. This election is not available if the plan is a “successor 

plan,” i.e., at least half the eligible employees under the plan were eligible under another section 401(k) plan of the employer in the prior 

year.

If elected by the employer, by so providing in the plan, the ADP test can be applied by comparing the current plan year’s ADP for highly 

compensated employees with the current, rather than the prior, plan year’s ADP for nonhighly compensated employees. This method of 

ADP testing is called the “current year testing method.” Note that the plan must specify whether the prior year or the current year testing 

method will be used. If the employer has elected to use the current year testing method, switching to prior year testing can only be done 

if the plan meets the requirements for changing to prior year testing set forth in regulations section 1.401(k)-2(c)(1). Generally, a plan can 

switch from current year testing to prior year testing only if 1) the employer has been involved in a merger, acquisition or similar transaction, 

and as a result, plans using different testing methods are maintained; and 2) the plan has used current year testing for the past 5 years. A 

plan can be amended anytime to use the current year testing method for a future plan year.

The plan must provide that it will meet the ADP test (unless it contains SIMPLE provisions, Safe Harbor CODA provisions, or QACA 

provisions). (A plan may not provide for “default ADP testing;” i.e., if the plan fails to satisfy the requirements for non-ADP testing, then 

the ADP test will be performed.) However, in lieu of stating the ADP test, the plan may incorporate by reference the provisions of section 

401(k)(3) and the regulations thereunder. The following discussion summarizes the principal requirements of these regulations. A plan 

that sets forth the ADP test in lieu of incorporating it by reference must describe the test in a manner which satisfies these requirements, 

including whether it is using the current or prior year testing method and, if using the prior year testing method, whether 3 percent or the 

first plan year’s ADP is to be used for the non-highly compensated employees for the first testing year. (Also see VII.c. regarding the effect 

of distributions of excess deferrals on the calculation of the ADP test.)

401(k)(3)(A)(ii), (3)(G), (11), (12) and (13)

414(v)(3)(B)

1.401(k)-1(a)(4)(iv), (b), (e)(7), -2(c), -3 and -4

Line b. (i) Eligible Employees. The actual deferral ratios of all eligible employees must be taken into account for the ADP test. For this 

purpose, the term “eligible employee” has the same meaning as discussed under Coverage and Participation (see explanation Ill.a.). If 

an eligible employee has not made an elective deferral, the deferral ratio is zero and must be included in the ADP of the applicable group 

(either the highly compensated group or the non-highly compensated group).

Some plans have tried to base the ADP test only upon participants, rather than eligible employees. They then define “participant” as any 

employee who chooses to make an elective deferral. This definition inflates the deferral percentage by ignoring all the employees who 

would otherwise be counted in the ADP test as having deferral ratios of zero percent. This is not a permissible definition of participant for 

the purposes of calculating the deferral percentage.

1.401(k)-1(b)(1) and -2
Page 5 For applications submitted to conform to the 2020 RA List

If an employer elects to apply section 410(b)(4)(B) (relating to exclusion of employees not meeting the statutory minimum age and service 

requirements), in determining whether a CODA meets section 410(b)(1) the plan may provide that, in determining whether the CODA meets 

the ADP test, all eligible employees (other than HCEs) who have not met the minimum age and service requirements of section 410(a)(1)

(A) (age 21 and 1 year of service) are excluded.

401(k)(3)(F) 

1.401(k)-2(a)(1)(iii)

(ii) and (iii) Contributions Taken Into Account. In running the ADP test for a plan year, an elective contribution is to be taken into account 

only if it relates to compensation that either (a) would have been received by the employee in the plan year but for the deferral election, or 

(b) if the plan specifically provides, is attributable to services performed by the employee in the plan year and would have been received 

by the employee within 21⁄2 months after the close of the plan year but for the deferral election. In addition, an elective contribution is to be 

taken into account under the ADP test for a plan year only if it is allocated to the employee as of a date within the plan year. An elective 

contribution is considered allocated as of a date within the plan year if the allocation is not contingent on the performance of services 

after that date and the contribution is actually paid to the trust by the last day of the 12th month after the end of the plan year. (Note that 

Department of Labor regulations require that money withheld from an employee’s paycheck be deposited into the plan as of the earliest 

date such money can be segregated from the employer’s general assets but not later than the 15th business day after the month the 

money was withheld. (A 7-business-day safe harbor applies to plans with less than 100 participants.) See 29 CFR 2510.3-102. An elective 

contribution which does not relate to the current plan year’s compensation or which is not allocated during the plan year to which it relates is 

not eligible to be tested under the ADP test. Instead, the contribution must satisfy section 401(a)(4) for the plan year in which it is allocated 

as if it were the only employer contribution for that year.

1.401(k)-2(a)(4) and (5)

Under certain circumstances, an employer may treat certain nonelective contributions (i.e., qualified non-elective contributions or QNECs) 

and certain matching contributions (i.e., qualified matching contributions or QMACs) as elective contributions for purposes of the ADP test. 

If the terms of the plan provide for this, then Part VI. of the worksheet should also be completed. 

1.401(k)-2(a)(6)

(iv) and (v) Aggregation. If an employer maintains more than one CODA, the following aggregation rules apply. When two or more plans 

are treated as a single plan for purposes of section 401(a)(4) or 410(b) (other than the average benefits test under section 410(b)(2)(A)

(ii)), all CODAs included in such plans are treated as a single CODA for purposes of the ADP test as well as for the purposes of section 

401(a)(4) and 410(b). Two or more CODAs may be permissively aggregated if the aggregated CODAs satisfy the ADP test. Plans may not 

be permissively aggregated unless they have the same plan year and use the same testing method (either all current or all prior). In this 

case the aggregated CODAs and the plans are treated as a single CODA and a single plan for purposes of sections 401(a)(4), 401(k) and 

410(b). After the effective date of the final 401(k) and 401(m) regulations, an ESOP may be aggregated with a non-ESOP for purposes of 

the ADP (and ACP) test, only. Notwithstanding the foregoing, a plan covering collective bargaining unit employees may not be aggregated 

with one that does not cover such employees. In addition, the following single plans must be separated into component plans and tested 

separately: 1) plans which benefit employees covered by a collective bargaining agreement and employees covered under another, or no, 

collective bargaining agreement; 2) plans covering employees of two or more qualified separate lines of business (unless the special rule 

for employer-wide plans in section 1.414(r)-1(c)(2)(ii) of the regulations apply); and 3) plans covering employees of more than one employer 

not pursuant to a collective bargaining agreement. However, an employer may elect to treat two or more collective bargaining agreements 

as one collective bargaining agreement, so that employees covered under different collective bargaining agreements will be treated as if 

covered under a single plan. This election can only be made if the combinations are reasonable and reasonably consistent from year to 

year.

When plans are combined, or plan eligibility is changed, and the employer is using the prior year testing method, the ADP for non-highly 

compensated employees is the sum of the ADPs of the employer’s plans these employees were in during the preceding year, with each 

such plan’s preceding year ADP reduced to reflect the proportion of non-highly compensated employees from that plan in the present plan. 

Example: 

In Year 1, an employer had three plans subject to section 401(k), with the ADPs for nonhighly compensated employees being 2, 3 and 

4 percent. In Year 2, the plans are properly combined, resulting in one plan with 400 eligible nonhighly compensated employees: 200 

from the 2-percent plan and 100 from each of the other two plans. Using the prior year testing method for Year 2, the ADP is 2.75. [(2 

X 200/400) + (3 X 100/400) + (4 X 100/400) = 2.75]

Repeated plan amendments to inflate the ADP of highly compensated employees could cause the plan to fail the nondiscrimination 

requirement of Code section 401(k)(3), even if the ADP test is passed.

Elective contributions may not be used to satisfy minimum contributions or benefit requirements under section 416 or (except to the extent 

provided in section 401(k) or (m)) to enable any other plan to meet the requirements of section 401(a) or 410(b). (See explanation VI.) 

Whenever a highly compensated employee is eligible under more than one CODA of the same employer, this employee’s actual deferral 

ratio is calculated by treating all the CODAs as one CODA. Thus, in this situation, the highly compensated employee’s actual deferral ratio 

will be the same under all CODAs in which he or she is eligible to participate. This rule does not apply to employees who are not highly 

compensated. Also, this rule does not apply in the case of contributions to plans that may not be aggregated (unless the reason they can’t 

be aggregated is inconsistent testing methods (prior versus current year) or different plan years).
Page 6 For applications submitted to conform to the 2020 RA List

Note that a plan may not be restructured to satisfy the ADP test. 

401(k)(3) 

1.401(k)-1(b)(3), (4), -2(a)(3)(ii) and -2(c)(4)

(vi) Use of Relevant Plan Years. The plan must use the proper plan years when determining the ADRs of the highly compensated employees 

and of the non-highly compensated employees. As described in V.a., above, if the plan is using the prior year testing method, the ADP of 

highly compensated employees for a testing year is determined using current plan year (testing year) data while the ADP for non-highly 

compensated employees is determined using prior plan year data. Whether an eligible employee is in the highly compensated or non-highly 

compensated group, or both, is based on his or her status in the current and prior plan years. Similarly, if the plan is using the current year 

testing method, the ADPs of both highly compensated employees and non-highly compensated employees (and their identity as one or the 

other) for a testing year are determined using current plan year (testing year) data. 

401(k)(3)

Line c. In addition to satisfying the ADP test, a plan that includes a qualified CODA must also satisfy section 401(a)(4) with respect to the 

availability of benefits, rights, and features under the plan, including the right to make each level of elective contributions. To satisfy this 

availability requirement, a benefit, right or feature must be available to a group of employees that satisfies section 410(b). Any limitation on 

the percentage of compensation (such as the definition of compensation subject to a deferral election) that may be deferred which favors 

highly compensated employees will cause both the CODA and the plan to fail to be qualified. A CODA may not be integrated with Social 

Security, although the underlying profit-sharing or stock bonus plan may be so integrated.

A plan that permits catch-up contributions under section 414(v) will not violate section 401(a)(4) (because some employees can defer 

more than others), provided the ability to make such contributions is universally available to employees (other than collectively bargained 

employees described in section 410(b)(3)) aged 50 and over. All elective deferral plans of the employer must be considered for this rule 

and “employer” is determined after the application of section 414(b), (c), (m) and (o). (See Part II.c. for more on catch-up contributions.)

A CODA will not be qualified if any other benefit is directly or indirectly conditioned on whether or not the employee chooses to defer. 

Examples of such benefits are benefits under a defined benefit plan, nonelective employer contributions (other than matching contributions 

resulting from the deferral), plan loans, increases in salary and bonuses, and medical, dental, and vacation benefits. 

414(v)

1.401(a)(4)-4 

1.401(k)-1(a)(4)(iv) and (e)(6) 

1.414(v)-1(e)

VI. Qualified Nonelective Contributions (QNECs) And Qualified Matching Contributions (QMACs)

Under certain circumstances, an employer may treat qualified nonelective contributions (QNECs) as elective contributions for purposes of 

the ADP test. QNECs are employer contributions, other than matching contributions, which are not subject to employee election, are fully 

vested when made to the plan, and are subject to the distribution restrictions that apply to elective contributions regardless of whether they 

are actually taken into account for the ADP test. A plan must provide a definite allocation formula for QNECs. An employer may also, under 

certain circumstances, treat certain matching contributions as elective contributions. Matching contributions that are eligible to be treated 

as elective contributions are referred to as qualified matching contributions (QMACs). A QMAC, like a QNEC, is fully vested when it is 

made to the plan and is subject to the distribution restrictions applicable to elective contributions regardless of whether it is actually taken 

into account for the ADP test. Matching contributions do not violate the “fully vested when made to the plan” requirement if they may be 

forfeited because the contributions on which they were based were excess deferrals, excess contributions, excess aggregate contributions, 

or default contributions withdrawn under an eligible automatic contribution arrangement (EACA).

The practice of targeting QNECs at nonhighly compensated employees with the least salary (so-called “bottom-up leveling”) could result in 

some or all of such QNECs being ineligible for use in the ADP (or ACP) test.

A plan which provides for employee or matching contributions is subject to the requirements of section 401(m) of the Code. (See Worksheet 

#11.) Section 401(m) includes an actual contribution percentage (ACP) test which is identical to the ADP test except that employee and 

matching contributions are substituted for elective contributions. (However, QMACs that an employer takes into account for the ADP test 

are disregarded in performing the ACP test. Thus, the ACP test will not be relevant where there are no employee contributions and the 

only matching contributions are QMACs that are counted as elective contributions in the ADP test.) On the 401(m) side, the employer may, 

under certain circumstances, treat elective contributions under a CODA and/or QNECs as matching contributions for the ACP test. 

If a plan switches from the current year testing method to the prior year testing method, regulations sections 1.401(k)-2(a)(6)(vi) and 

1.401(m)-2(a)(6)(vi) limit the extent to which QNECs and QMACs may be taken into account in determining the NHCEs’ ADP or ACP for 

the prior year.

This part of the worksheet should be completed if the terms of the plan provide that QNECs and/or QMACs will be taken into account for 

the ADP test or if the plan provides that the employer will make additional QNECs or QMACs if necessary to satisfy the ADP test.

401(k)(3)(D), 401(k)(8)(E), 401(m)(3) and (m)(4)

1.401(k)-2(a)6) and -6

1.401(m)-2(a)(6) and -5 
Page 7 For applications submitted to conform to the 2020 RA List

Line a. (i) QNECs and QMACs must be fully vested (but see above for instances of when QMACs may be forfeited) when made to the 

plan, without regard to the participant’s age and service and without regard to whether the contribution is actually taken into account for the 

ADP test. Thus, forfeitures cannot be used as QNECs or QMACs because such contributions were not fully vested when made to the plan.

401(k)(3)(D)

1.401(k)-6

(ii) QNECs and QMACs may be distributed only under circumstances that also permit the distribution of elective contributions. (See VII.a. 

and b.) Under the terms of the plan, QNECs and QMACs must be subject to these distribution limitations regardless of whether they are 

actually taken into account for the ADP test. (Note that under prior law, QNECs and QMACs could not be used as a source of funds for a 

participant’s requested hardship distribution.)

401(k)(3)(D) 

1.401(k)-6

Line b. If the plan provides that it will take QNECs and QMACs into account for purposes of the ADP test, it must limit the QNECs and 

QMACs that will be treated as elective contributions to those contributions that are made with respect to employees who are eligible 

employees under the CODA being tested. QNECs and QMACs cannot be used in an ADP test if they have already been used in an ACP 

test or another ADP test (e.g., in an ADP test in a plan that switches from current year testing to prior year testing) or have been used 

in a safe harbor CODA or a SIMPLE 401(k) plan. Furthermore, the plan must provide that such contributions will be treated as elective 

contributions only if the additional requirements described below and specified in section 1.401(k)-2(a)(6) of the regulations are satisfied.

The plan may incorporate these requirements by reference. 

1) The non-elective contributions, including QNECs treated as elective contributions for the ADP test and QNECs treated as matching 

contributions for the ACP test, satisfy section 401(a)(4)

2) The non-elective contributions, excluding QNECs treated as elective contributions for the ADP test and QNECs treated as 

matching contributions for the ACP test, satisfy section 401(a)(4). (QNECs allocated to the accounts of NHCEs and HCEs for the 

same plan year are subject to the requirements of section 401(a)(4) for that plan year even if the plan is using the prior year testing 

method whereby the QNECs for the NHCEs and HCEs are taken into account for the ADP test in different years.) 

3) The QNECs and QMACs are allocated to the employee within the relevant plan year and are actually paid to the trust on or before 

12 months after the end of that plan year. (See explanation V.b.(iii) regarding when a contribution is considered allocated within 

a plan year for this purpose.) 

The plan which treats QNECs and QMACs as elective contributions and the plan to which the QNECs and QMACs are made must have 

the same plan year and otherwise could be aggregated for purposes of ADP testing. Thus, QMACs made under a plan that uses current 

year testing could not be used in a CODA that uses prior year testing.

A QNEC that exceeds 5 percent of the non-highly compensated employee’s compensation (10 percent in the case of Davis-Bacon-type 

plans) cannot be counted in the ADP test if it is greater than twice the lowest QNEC and QMAC percentage given to at least half the eligible 

nonhighly compensated employees. A similar rule applies to matching contributions, including QMACs used in the ADP test.

Example:

An employer has four nonhighly compensated employees eligible for its CODA and they have compensation for the plan year of 

$1,000, $10,000, $20,000 and $50,000. If the employer makes a flat-dollar QNEC to these employees of $200, which as a percentage 

of compensation is 20%, 2%, 1% and 0.4%, respectively, no more than 5% of the $1,000 employee’s QNEC can be used in the ADP 

test because the most that half these employees got was a 2% QNEC and twice 2% is only 4%. Prior to the final section 401(k) and 

(m) regulations, the full 20% could have been used to raise the ADP of the non-highly compensated employees.

401(k)(3)(D) 

1.401(k)-2(a)(6)

VII. Distributions/Corrections

Line a. Elective contributions (and QNECs and QMACs), and the earnings attributable to such contributions, may only be distributed upon 

the earlier of death, disability, severance from employment or termination of the plan without establishment or maintenance of another 

defined contribution plan (other than an ESOP, a SEP, a SIMPLE IRA plan, a section 403(b) plan or a section 457 plan) that benefits 2 

percent or more of the employees in the terminated plan. The same distribution restrictions apply to amounts rolled over from a participant’s 

pre-tax elective contribution account into a Roth elective contribution account in the same plan through an in-plan Roth rollover. Distributions 

permitted upon plan termination must be in a lump sum. An employee has a severance from employment when the employee ceases to be 

an employee of the employer maintaining the plan. For years beginning after December 31, 2008, an employee may be treated as severed 

from employment and receive a distribution while performing service in the uniformed services provided that the employee may not make 

an elective deferral or employee contribution during the 6-month period beginning of the date of distribution.

In addition, for profit-sharing, stock bonus and rural cooperative plans, distributions upon attainment of age 591⁄2 or because of participant 

hardship are permitted. Amounts attributable to income allocated to elective deferrals after a date specified in the plan may not be distributed 

on account of hardship. Amounts may not be distributed merely because of the lapse of a period of time (such as 2 years). A plan may also 

provide for distributions of excess contributions or deferrals (See VII.c., e., and f.). 
Page 8 For applications submitted to conform to the 2020 RA List

IRC section 401(k)(2)(B)(i)(V), added by section 827 of PPA’06 as amended by the HEART Act, permits reservists called to active duty after 

September 11, 2001, to take in–service distributions from a 401(k) plan. In addition, distributions may be made to participants affected by 

certain natural disasters, as described in the particular disaster legislation. See e.g., IRC section 1400Q.

This does not preclude distributions, even within the plan containing the CODA, of other amounts. For example: an employer maintains 

a profit-sharing plan containing a CODA feature that provides, in addition to contributions to the CODA, employer contributions which are 

neither QMACs nor QNECs. The plan may provide for distributions every 2 years (or upon any other stated event), out of these non-elective 

contributions. These nonelective contributions may not be taken into account for the ADP test. 

401(k)(2)(B), (7)(C) and (10)

414(u)(12)(B)

1.401(k)-1(d)

Notice 2013-74, 2013-52 I.R.B. 819

Line b. (i) and (ii) Profit-sharing, stock bonus and rural cooperative plans may make distributions of elective contributions on account of 

participant hardship. Such distributions must be in accordance with objective, nondiscriminatory standards set forth in the plan. The plan 

must state criteria for determining whether: i) the participant has an immediate and heavy financial need, and ii) the distribution is needed 

to satisfy the financial need.

Generally, a distribution may not be made unless the participant can meet these tests. For an immediate and heavy financial need 

circumstances to exist, (a) the amount distributed may not exceed the amount of an employee’s need (including any amounts necessary 

to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution), (b) the employee 

must have obtained other available, non-hardship distributions under the employer’s plans, and (c) and the employee must provide a 

representation that he or she has insufficient cash or other liquid assets available to satisfy the financial need. (This representation can 

be made through electronic media.) However, a distribution made on account of (i) medical expenses described in section 213(d) of the 

Code for the employee or the employee’s primary beneficiary under the plan; (ii) the purchase of a principal residence for the employee; 

(iii) the payment of college/graduate school tuition (for the next 12 months) for the employee, the employee’s spouse, children or other 

dependents, or the employee’s primary beneficiary under the plan; (iv) the need to prevent eviction of the employee or foreclosure on his 

or her principal residence; (v) burial or funeral expenses of a parent, child, spouse, dependent, or primary beneficiary under the plan; or 

(vi) casualty damage to the employee’s principal residence is deemed to be on account of an immediate and heavy financial need , without 

regard to whether the damage would otherwise qualify for a casualty deduction under section 165); and (vii) expenses incurred as a result 

of a federally declared disaster in an area designated by the Federal Emergency Management Agency. 

A distribution is not necessary to satisfy the need to the extent it exceeds the amount required (including any government tax or penalty) or 

to the extent the need can be met from other resources reasonably available to the employee. A distribution may be treated as necessary 

to satisfy the need (and the plan may so provide) if the employer relies on the employee’s written representation (unless the employer has 

actual knowledge to the contrary) that the need cannot be reasonably relieved by insurance reimbursement, reasonable liquidation of the 

employee’s assets or the assets of the employee’s spouse and minor children that are reasonably available to the employee, cessation 

of elective deferrals or employee contributions, borrowing from commercial sources, or other distributions or nontaxable loans from any 

employer, except that previous requirements to take qualified plan loans have been repealed effective as of. (Note that under prior law, 

different hardship distribution criteria applied.)

401(k)(2)(B) and (7)(C)

1.401(k)-1(d)

Line c. Under section 402(g)(1), a participant generally may not defer an amount greater than the limit under section 402(g) in a taxable 

year, taking into account all the plans in which he or she participates. (See II.c. for the limit under section 402(g).) A plan must be written 

to preclude deferrals over the indexed amounts. A plan may provide a mechanism by which a participant can ask that all or a portion of 

his or her excess deferrals (arising from participation in plans of more than one employer), and the income allocable to that amount, will 

be returned to him or her no later than April 15 of the year following the year in which the contributions were made. However, such a 

mechanism is not required as a condition of plan qualification.

Section 401(a)(30) requires as a condition of plan qualification that elective contributions under plan(s) of related employers not exceed the 

section 402(g) limit. A plan may provide that an employee is deemed to notify the employer of excess deferrals in this situation and the plan 

can distribute the excess by the first April 15 following the year in which the excess arose to avoid disqualification.

Such distributions may be made without spousal consent. If the plan permits Roth elective contributions, it may provide the ordering rules 

for distributions of excess deferrals. Alternatively, the plan may provide that the participant must choose whether the excess is distributed 

from his or her pre-tax or Roth elective contribution account, to the extent such type of contribution was made for the year. The amount to be 

distributed is the amount specified (or deemed specified) by the employee (not to exceed the elective deferrals under the plan for the year) 

plus allocable income or minus allocable loss. For 2007, allocable income or loss includes income or loss for the participant’s taxable year 

and income or loss for the period between the end of the taxable year and the date of distribution (the “gap period”). (See regulations under 

402(g) issued April 30, 2007.) For taxable years beginning before January 1, 2006, income or loss allocable to the gap period could be 

disregarded in determining income or loss on excess deferrals for such years. For years after 2007, allocable income or loss is determined 

only through the end of the taxable year of the excess, due to a WRERA retroactive amendment to Code section 402(g)(2)(A)(ii). The plan 

may use any reasonable method for calculating the income or loss, provided the method is used consistently and is the normal method 

used by the plan for allocating income or loss to participants’ accounts.
Page 9 For applications submitted to conform to the 2020 RA List

Alternatively, allocable income or loss for the taxable year is determined by multiplying the income or loss for the taxable year allocable 

to elective contributions by a fraction, the numerator being the excess deferrals of the employee for the taxable year and the denominator 

being the account balance attributable to elective contributions as of the end of the taxable year minus the income or plus the loss allocable 

to such account balance for the year. 

For years before 2008, the plan may determine the allocable income or loss for the “gap period” in a similar manner or, alternatively, it may 

determine income or loss for this period under a safe-harbor method as equal to 10 percent of the income or loss for the past taxable year 

times the number of months between the end of the year and the date of distribution, counting whole months only and treating distributions 

made after the first 15 days of the month as occurring on the first day of the next month.

A plan may provide that excess deferrals may be distributed in the year in which they were made, provided the employee and the plan 

designate the distribution as an excess deferral and the distribution is made after the date the excess deferral occurred.

In performing the ADP test, the plan must generally still count excess deferrals as elective contributions even if they have been distributed. 

However, excess deferrals made under an employer’s plan (and all plans of related employers) of a nonhighly compensated employee are 

not taken into account in the ADP test in that employer’s plans. (See VII.f.(iii) regarding the coordination of distributions of excess deferrals 

and distributions or recharacterization of excess contributions.) 

A distinction should be made between an excess deferral (i.e., an amount in excess of an individual participant’s section 402(g) elective 

deferral limit) and an excess contribution, which is a contribution on behalf of a highly compensated employee that is above the maximum 

deferral percentage allowed under the ADP test for a particular plan in a particular plan year.

401(a)(30) and 402(g)

1.401(a)-30(a) 

1.402(g)-1(e)

Line d. A plan may provide that the employer will make additional QNECs or QMACs in order to satisfy the ADP test. If this is the case, also 

complete Part VI. of the worksheet. (See the discussion of QNECs and QMACs in V. and VI.) In this event, further correction will not be 

required. Note, however, that if the plan provides for QMACs which are not treated as elective contributions for the ADP test, the plan is also 

subject to the requirements of section 401(m). The option of making additional QNECs or QMACs to pass the test is generally unavailable 

to plans using the prior year testing method because additional contributions have to be made to raise the ADP of nonhighly compensated 

employees no later than 12 months following the end of the plan year and this period has already expired when the test is run. For example, 

for the calendar-year 2009 testing year, the ADP test will be run in 2010, comparing the ADP of highly compensated employees for 2009 

with the ADP of nonhighly compensated employees for 2008. Since contributions taken into account in determining the 2008 ADP would 

have had to be made before 2010, if the plan fails the ADP test, it is too late to make additional contributions.

401(k)(3)(D)

1.401(k)-2(a)(6)(i) and -2(b)(1)(i)(A)

Line e. If the deferral percentage limits determined using the ADP test described in section 401(k)(3) are exceeded and the employer will 

not be making any corrective contributions, the plan is required to distribute or recharacterize the excess contributions, plus any income 

attributable to the excess contributions in the case of a distribution, in order for the CODA to be qualified. Excess contributions are elective 

contributions (and QNECs and QMACs that are taken into account for the purpose of the ADP test) contributed on behalf of the highly 

compensated employees, which exceed the maximum permissible deferral percentage determined using the ADP test. A plan may use a 

combination of additional QNECs or QMACs, distribution and recharacterization, and may also permit or require a participant to designate 

which of the latter two methods will be used, and to what extent each of the latter two methods will be used, provided the method is 

described in the plan. Similarly, if Roth elective contributions are permitted under the CODA after 2005, the plan may designate or permit 

the participant to designate the source of distributions. A plan may not correct excess contributions by placing them in a suspense account 

or by leaving them unallocated. To avoid a discriminatory rate of match, a plan generally must also forfeit matching contributions (even 

QMACs) that relate to contributions treated as excess deferrals (unless the excess deferrals are for nonhighly compensated employees), 

excess contributions, or excess aggregate contributions. Such a forfeiture will not cause the plan to violate section 411. 

Alternatively, the plan may contain a fail-safe formula or a procedure for prospectively reducing highly compensated employees’ elective 

contributions so that no excess contributions arise. 

401(k)(8) and 411(a)(3)(G) 

1.401(k)-2(b)

Line f. (i), (ii) The determination of the amount of excess contributions attributable to each highly compensated employee and the identity of 

the highly compensated employees who will have excess contributions distributed from their accounts is performed in two separate steps. 

First, the total amount of excess contributions in the plan is calculated by determining the amount needed to be removed from the account 

of each highly compensated employee, working backward from the highly compensated employee with the greatest deferral ratio (“ADR”), 

so that the ratios remaining would pass the ADP test. Then, the amount so determined is distributed to highly compensated employees 

according to the dollar amount of their contributions used in calculating the ratio, beginning with the highly compensated employee with 

the greatest amount, until the total is distributed. However, if the highly compensated employee targeted for distribution has not reached 

his or her catch-up contribution limit for the year, the plan may not distribute the excess contributions to the extent of the unused catch-up 

contributions.
Page 10 For applications submitted to conform to the 2020 RA List

Example: 

Employee Compensation Deferral ADR ADP

A. $100,000 $7,000 7.00%

B. $90,000 $6,500 7.22% 6.41%

C. $80,000 $4,000 5.00%

D. $20,000 $0 0.00%

E. $10,000 $0 0.00% 3.33%

F. $10.000 $1,000 10.00%

D, E, and F are nonhighly compensated employees, and the figures shown for them in this table are for the prior plan year. All employees 

are under age 50.)

Under the ADP test, the greatest acceptable ADP for the highly compensated employees (A, B and C) is 5.33 (see example in V.a.). Since 

6.41 is greater than 5.33, there are excess contributions. Since the plan is using the prior year testing method, contributing corrective 

QNECs or QMACs to the nonhighly compensated employees is not an option; thus, the employer must distribute or recharacterize the 

excess contributions.

In determining the amount of excess contributions, the proper procedure is to hypothetically reduce the highest ADR until the maximum 

allowed percentage (5.33) is achieved, or until the next highest ADR is reached, whichever occurs first (“ratio leveling method”). In this 

case, if B’s ADR is reduced to 7.00, the ADP will be 6.33. Since this is not sufficient to satisfy the ADP test, A and B’s ADRs must be further 

reduced to 5.50%. The amount of excess contributions is the difference between the contributions at the old ADRs ($7,000 and $6,500) and 

the contributions at the new ADRs ($5,500 and $4,950), for a total amount of $3,050. Assuming the plan corrects through distribution (and 

ignoring income or loss), this amount must then be distributed from the account(s) of the highly compensated employee with the highest 

dollar amount of contributions used in the ADP test for the plan year until the contributions remaining in such employee’s account equals 

the plan-year contributions in the highly compensated employee’s account(s) with the next highest dollar amount (“dollar leveling method”). 

Therefore, $500 must first be distributed to A, to make A’s contributions level with B’s, and the remaining amount of excess contributions, 

$2,550, is then allocated equally to A and B, so that each has $5,225 of elective contributions remaining for the year. (Note that the ADP test 

is deemed passed after these corrections even though running the test then would not produce a passing ADP for the highly compensated 

employees.) 

401(k)(8), 414(v)(3)(B) 

1.401(k)-2(b)(2)

1.414(v)-1(d)(2)(iii)

(iii) Any distribution of excess deferrals from the plan must be coordinated with the distribution or recharacterization of excess contributions 

as follows. (See VII.c. above.) First, if excess deferrals have previously been distributed for the employee’s taxable year ending with or 

within the plan year, then the plan must offset such distribution from the amount of the employee’s excess contributions to be distributed 

or recharacterized for that plan year. Second, the amount of excess deferrals that may be distributed by the plan for a taxable year of the 

employee must be reduced by the amount of excess contributions previously distributed or recharacterized for the plan year beginning with 

or within that taxable year. 

1.401(k)-2(b)(4)

(iv) Income or loss must be allocated to excess contributions which are to be distributed in the same manner as income or loss is allocated 

to excess deferrals, except that the plan year is substituted for the taxable year and excess contributions are substituted for excess 

deferrals in calculating the allocable income or loss. For plan years beginning before 2006, income or loss allocable to the “gap period” 

(the period between the end of the plan year in which the ADP was exceeded and the date of the distribution of excess contributions) could 

be disregarded in determining income or loss on excess contributions for such years. (See VIl.c.) For plan years beginning after 2005 and 

before 2008, allocable income or loss included allocable income or loss for the gap period. For plan years beginning on or after January 1, 

2008, allocable income or loss does not include allocable income or loss for the gap period.

401(k)(8) 

1.401(k)-2(b)(2)(iv) 

(v) A distribution of excess contributions must be made after the plan year in which the excess contributions were made. However, if a 

distribution of an excess contribution is not made before the end of the 12 months following the end of the plan year in which they were 

made, the CODA will fail to be qualified for the year in which the excess contributions were made and all subsequent years until corrected. 

Moreover, if excess contributions are not distributed or recharacterized within 21⁄2 months of the end of the plan year, the employer will be 

liable for a 10-percent excise tax on these contributions. Correction by QNECs or QMACs (only if using current year testing), even if after 

the 21⁄2-month period, will enable the employer to avoid the 10-percent excise tax. The regulations provide that any distribution of excess 

contributions must be designated as such by the employer. For plan years beginning on or after January 1, 2008, in the case of a plan that 

includes an eligible automatic contribution arrangement (EACA), the 21⁄2 month distribution deadline is extended to 6 months in certain 

circumstances. (See XII.)

401(k)(8), 4979

1.401(k)-2(b)(5)
Page 11 For applications submitted to conform to the 2020 RA List

Line g. Section 401(k)(8)(A)(ii) provides that a plan may use recharacterization as a means of eliminating excess contributions. 

Recharacterization involves treating excess contributions as employee contributions to the plan; that is, treating the transaction as a 

distribution followed by a contribution to the employee’s employee contribution account. Any amount so contributed must be included in 

the 401(m) (ACP) test. Although recharacterized excess contributions are treated as employee contributions for purposes of sections 72, 

401(m) and 401(a)(4), for other purposes, including section 404, recharacterized amounts continue to be treated as employer contributions. 

Recharacterized amounts are includible in the employee’s gross income as if such amounts were distributed as excess contributions. 

Elective contributions may be recharacterized only in the plan in which they are made or under a plan with which that plan could be 

aggregated. Thus, elective contributions may not be recharacterized under a plan unless the plan has the same plan year as the plan under 

which the elective contributions were made and the same testing methods (prior year or current year) are involved. Generally, this will not 

be a problem as the plan to which the elective contributions were made will be the plan that recharacterizes.

401(k)(8)

1.401(k)-2(b)(3) 

1.401(m)-2(c)(3) 

(i) If a plan allows recharacterization it must do so in a nondiscriminatory manner. A plan which only allows employee contributions by way 

of recharacterization would be per se discriminatory because nonhighly compensated employees would have no opportunity to contribute. 

Similarly, the amount recharacterized, when added to the other employee contributions for the highly compensated employees, may not 

exceed the limits under the plan relating to employee contributions.

1.401(k)-2(b)(3)(iii)(B)

(ii)-(v) The plan must provide that the amount of excess contributions to be recharacterized will be determined using the “leveling” methods. 

Thus, in the example in VII.f.(i), if the excess contributions were to be recharacterized rather than distributed, the amount of excess 

contributions and the identity of the highly compensated employees to whom the excess is allocated would be the same. In addition, the 

amount to be recharacterized is offset by any amounts previously distributed as excess deferrals. Finally, recharacterization must take 

place within 21⁄2 months of the end of the plan year to which the recharacterization relates. Recharacterization will be deemed to occur on 

the date on which the last affected highly compensated employee is notified of the recharacterization and the tax consequences of such 

recharacterization.

401(k)(8) 

1.401(k)-2(b)(3)(iii)(A)

VIII. Highly Compensated Employee/Compensation

Lines a. and b. Section 414(q) of the Code defines “highly compensated employee.” This definition applies for purposes of section 401(k), 

including the ADP test. Effective for years beginning after December 31, 1996, the term “highly compensated employee” (HCE) means any 

employee who: 

1) was a 5-percent owner at any time during the year or the preceding year, or

2) for the preceding year had compensation (as defined in section 415(c)(3)) from the employer in excess of $80,000 and, if the 

employer so elects, was in the top-paid group for the preceding year. 

The $80,000 amount is adjusted at the same time and in the same manner as under section 415(d), except that the base period is the 

calendar quarter ending September 30, 1996.

The only regulations under section 414(q), Temp. Regs. section 1.414(q)-1T, were written before section 414(q) was amended by the Small 

Business Job Protection Act of 1996, effective for years after December 31, 1996. Consequently, portions of those regulations do not reflect 

current law.

HCE status is determined on the basis of the applicable year of the plan (“determination year”) and the preceding 12-month period (“lookback year”). The plan must take into account employees of all employers aggregated under section 414(b), (c), (m) and (o), in determining 

who is a HCE. Also, for this purpose, the term “employee” includes leased employees unless such employees are covered under a safeharbor plan of the leasing organization and not covered under a qualified plan of the employer.

414(q)

1.414(q)-1T Q&A 6 and 7

An employer may make a top-paid group election for a determination year. The effect of this election is that an employee (who is not a 

5-percent owner at any time during the determination year or the look-back year) with compensation in excess of $80,000 (as adjusted) for 

the look-back year is an HCE only if the employee was in the top-paid group for the look-back year.

An employer may also make a calendar year data election for a determination year. The effect of this election is that the look-back year 

is the calendar year beginning with or within the look-back year. This election, once made, applies for all subsequent determination years 

unless changed by the employer. The plan may not use this election to determine whether employees are HCEs on account of being 

5-percent owners.

An employer making one of the elections is not required also to make the other election. However, if both elections are made, the look-back 

year in determining the top-paid group must be the calendar year beginning with or within the look-back year. These elections must apply 

consistently to the determination years of all plans of the employer, except that the consistency requirement will not apply to determination 
Page 12 For applications submitted to conform to the 2020 RA List

years beginning with or within the 1997 calendar year, and for determination years beginning on or after January 1, 1998 and before 

January 1, 2000, satisfaction of the consistency requirement is determined without regard to any nonretirement plans of the employer.

If a qualified plan contains the definition of highly compensated employee, and an employer makes or changes either a top-paid group 

election or a calendar year data election for a determination year, a plan must reflect the choices made. Any retroactive amendments must 

reflect the choices made in the operation of the plan for each determination year. A highly compensated former employee is based on the 

rules applicable to determining highly compensated employee status as in effect for that determination year. See section 1.414(q)-1T, A-4, 

of the temporary regulations and Notice 97-45.

Line c. Section 414(s) of the Code sets forth the definition of compensation that must be used for the ADP (and ACP) test. Section 414(s) 

states that compensation “has the meaning given such term by section 415(c)(3)” but that alternative definitions in regulations under 414(s) 

may also be used. Also, section 414(s) provides that the definition can exclude amounts not included in gross income under section 125, 

132(f), 402(e)(3), 402(h), or 403(b).

Final regulations under section 415 were published on April 5, 2007, and are generally effective for limitation years beginning on or after 

July 1, 2007. These regulations provide a comprehensive definition of 415(c)(3) compensation and three safe harbor definitions that 

automatically satisfy 415(c)(3) if specified in the plan.

Even if a plan incorporates the ADP test by reference, the plan must still include this definition.

The following definitions of compensation automatically satisfy section 414(s): 

1) Compensation within the meaning of section 415(c)(3). 

2) Compensation within the meaning of section 415(c)(3) reduced by all of the following: reimbursements or other expense 

allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits. 

Under any of these definitions, the employer can elect to include or exclude elective contributions not includible in income, section 457(b) 

deferred compensation, qualified transportation fringe benefits excluded from income under section 132(f)(4) and section 414(h)(2) pick-up 

contributions. If any of these are included (excluded), they must all be included (excluded).

A self-employed individual’s compensation cannot use 2 above; generally it is earned income as defined in section 401(c)(2). 

Other definitions of compensation may satisfy section 414(s) if they are reasonable, not designed to favor highly compensated employees, 

and if the facts and circumstances show that the average percentage of total compensation included for highly compensated employees 

as a group does not exceed the average percentage for nonhighly compensated employees by more than a de minimis amount. In this 

case, the employer must submit a demonstration that the definition is nondiscriminatory. Imputed compensation or compensation defined in 

reference to an employee’s rate of compensation (rather than actual compensation) may not be used for purposes of the ADP (or ACP) test.

The period used to determine an employee’s compensation must be the plan year, the calendar year ending in the plan year, or the portion 

of either during which the employee was eligible under the plan.

Compensation taken into account cannot exceed the $200,000 compensation limit described in section 401(a)(17), as adjusted by the 

Secretary for increases in the cost of living. Such adjustments are made in multiples of $5,000. See Parts X and XI below for the definition 

of compensation for safe harbor 401(k) plans and QACAs.

401(a)(17), 401(k)(9), 414(s), 415(c)(3) 

1.401(k) -6

1.414(s)-1

1.415(c)-2

Line d. A cash or deferred election can only be made with respect to amounts that are compensation within the meaning of section 415(c)

(3). This rule is effective for compensation paid (or that would have been paid but for a deferral election) in plan years beginning on or after 

July 1, 2007.

1.401(k)-1(e)(8).

IX. SIMPLE Provisions

Sections 401(k)(11) and 401(m)(10) of the Code (401(k) SIMPLE provisions) were added by the Small Business Job Protection Act of 1996 

to provide, for years after 1996, an alternative method of satisfying the ADP and ACP tests. In addition, a plan using the 401(k) SIMPLE 

provisions (a SIMPLE 401(k) plan) is not treated as top-heavy under section 416 of the Code.

A SIMPLE 401(k) plan can be used only by an employer “eligible employer.” An eligible employer means, with respect to any year, an 

employer that had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year. 

In applying the preceding sentence, all employees of controlled groups of corporations under section 414(b), all employees of trades or 

businesses (whether incorporated or not) under common control under section 414(c), all employees of affiliated service groups under 

section 414(m), and leased employees required to be treated as the employer’s employees under section 414(n), are taken into account.
Page 13 For applications submitted to conform to the 2020 RA List

An eligible employer that adopts a SIMPLE 401(k) plan and that fails to be an eligible employer for any subsequent year, is treated as 

an eligible employer for the 2 years following the last year the employer was an eligible employer. If the failure is due to any acquisition, 

disposition, or similar transaction, the preceding sentence applies only if the provisions of section 410(b)(6)(C)(i) are satisfied. The employer 

cannot have another plan covering employees who are eligible to participate in the SIMPLE 401(k). No contributions may be made during a 

year to a SIMPLE 401(k) plan, other than: (1) elective contributions of up to the “applicable dollar amount” (defined in section 408(p)(2)(E)) 

plus catch-up contributions described in section 414(v), if applicable, and (2) either employer matching contributions limited to 3 percent of 

employee’s compensation or employer nonelective contributions for all eligible employees equal to 2 percent of employee’s compensation. 

The applicable dollar amount is adjusted by the Secretary of the Treasury for cost-of-living increases, in multiples of $500. The following 

additional requirements apply to SIMPLE 401(k) plans: 

1) the plan year must be the calendar year; 

2) all amounts contributed under the plan must be nonforfeitable at all times; 

3) the plan must use a special definition of compensation for purposes of applying the 401(k) SIMPLE provisions; and 

4) the plan must satisfy special notification and election period requirements. 

Except as provided above, all other qualification requirements of the Code continue to apply to a plan that contains 401(k) SIMPLE 

provisions, including the contribution limitations of section 415 and the compensation limitations of section 401(a)(17). In addition, all 

other requirements applicable to 401(k) plans continue to apply, including the coverage and participation requirements (see Part III.), the 

distribution restrictions on elective contributions (see VII.a. and b.) and the general prohibition on State and local governments maintaining 

a 401(k) plan (see I.b.). 

If the plan contains 401(k) SIMPLE provisions, then this part of the worksheet must be completed.

401(k)(11), 401(m)(10), 414(v) 

1.401(k)-4

1.414(v)-1

Line a. Coverage Limitation. No contributions can be made, or benefits accrued for services during the year, on behalf of any eligible 

employee under any other plan, contract, pension, or trust described in section 219(g)(5)(A) or (B), maintained by the employer.

401(k)(11)(C)

Line b. Calendar-Year Requirement. The plan year of a SIMPLE 401(k) plan must be the calendar year. An eligible employer adopting a 

SIMPLE 401(k) plan for the first time can make it effective as of any date within a calendar year that is after the date of adoption but not 

later than October 1st of that calendar year (or as soon as administratively feasible if the employer comes into existence after October 1). 

The coverage limitation of IX.a., above, still applies for the entire calendar year, and contributions and compensation are determined over 

the entire calendar year.

401(k)(11), 408(p)(6)(C) 

1.401(k)-4(e)(3), (4) and (g)

Line c. Compensation

For purposes of applying the 401(k) SIMPLE provisions, compensation means the sum of the wages, tips, and other compensation 

from the employer subject to federal income tax withholding (as described in section 6051(a)(3)), the employee’s elective contributions 

made under the SIMPLE 401(k) plan or any other 401(k) plan, elective deferrals under a section 408(p) SIMPLE IRA plan, a SARSEP, 

or, a section 403(b) annuity contract and compensation deferred under, a section 457 plan, required to be reported by the employer on 

Form W-2 (as described in section 6051(a)(8)). Compensation also includes amounts paid for domestic service, as described in section 

3401(a)(3). Compensation does not include any amounts deferred by the employee pursuant to a section 125 cafeteria plan. For selfemployed individuals, compensation means net earnings from self-employment determined under section 1402(a) prior to subtracting any 

contributions made under the SIMPLE 401(k) plan on behalf of the individual. 

Compensation taken into account cannot exceed the $200,000 compensation limit described in section 401(a)(17), as adjusted by the 

Secretary for increases in the cost of living. Such adjustments are made in multiples of $5,000.

401(a)(17), 401(k)(11)(D), 408(p)(6)(A)

1.401(k)-4

Line d. Contributions

(i) Elective Contributions. 

Each eligible employee must be allowed to have up to the applicable dollar amount under section 408(p)(2)(E) (as adjusted by the Secretary 

for any increases in the cost of living) of his or her compensation contributed to the plan for a calendar year. In addition, for participants 

aged 50 or over by the end of the year, an additional amount may be elected by the employee. The limit on these “catch-up contributions” 

is adjusted by the Secretary of the Treasury for cost-of-living increases, under section 414(v)(2)(C). The employer must contribute these 

elective contributions (also called elective deferrals) to the respective employees’ accounts in the plan. 

401(k)(11)(B), 414(v) 

1.401(k)-4
Page 14 For applications submitted to conform to the 2020 RA List

(ii) Matching and Nonelective Contributions

Each year, the employer must contribute a matching contribution to the plan for each employee who made elective contributions. The 

amount of matching contributions that must be made for each employee is equal to the employee’s elective contributions (including any 

catch-up contributions) for the calendar year; but the matching contributions cannot exceed 3 percent of the employee’s compensation (as 

limited by section 401(a)(17)) for that entire calendar year. 

For any year, instead of a matching contribution, the employer may elect to contribute a nonelective contribution equal to 2 percent of 

compensation (as limited by section 401(a)(17)) for the entire calendar year for each eligible employee who had compensation of at least 

$5,000 for the year. The plan can provide that the 2-percent nonelective contribution will be made for eligible employees making a lesser 

amount than $5,000, but such lesser amount must be specified in the plan and communicated to employees (see IX.f.). 

401(k)(11)(B) 

1.401(k)-4

(iii) Limitation on Other Contributions 

No employer or employee contributions may be made to a SIMPLE 401(k) plan for the year other than elective contributions described in 

(i), above, matching or nonelective contributions described in (ii), above, and rollover contributions described in section 1.402(c)-2, Q&A1(a) of the regulations. 

401(k)(11)(B)

1.401(k)-4 

(iv) All benefits attributable to contributions made to a SIMPLE 401(k) plan must be nonforfeitable at all times.

401(k)(11)(A)(iii)

Line e. Employee Elections 

(i) During the 60-day period immediately preceding each January 1, and during any additional periods specified by the plan, each eligible 

employee must be permitted to make or modify an election to defer compensation. For the year an employee becomes eligible under the 

SIMPLE 401(k) plan, the 60-day election period requirement is deemed satisfied if the employee may make or modify an election during 

a 60- day period that includes either the date the employee becomes eligible or the day before. This means that if an employee becomes 

eligible on July 1, for example, he or she must be given a 60-day election period that ends on June 30th, or on August 28th, or on any date 

in between. Employee elections must be given effect as soon as practical after the employee becomes eligible. 

401(k)(11)(B)(iii)

1.401(k)-4 

(ii) Each employee may terminate an election to defer compensation any time during the year.

401(k)(11)(B)(iii)

401(k)-4(d)(2)(iii)

Line f. Notice Requirements 

The employer must notify each eligible employee prior to the 60-day election period described in IX.e.(i), above, that he or she can make 

an election to defer compensation under the SIMPLE 401(k) plan or modify a prior election during that period. The notification must indicate 

whether the employer will provide a 3-percent matching contribution or a 2-percent nonelective contribution. 

401(k)(11)(B)(iii)

1.401(k)-4(d)(3)

X. Safe Harbor Coda Provisions

Sections 401(k)(12) and 401(m)(11) were added by the Small Business Job Protection Act of 1996 to provide, for plan years beginning 

after 12/31/98, a design-based or “safe harbor” method of satisfying the ADP and ACP tests. This is an alternative way of satisfying the 

ADP and ACP tests. If the plan, by its terms, does not satisfy the safe harbor method, it must satisfy the regular nondiscrimination test as 

described in this Explanation #12 (and Explanation #11 for the ACP test). A safe harbor CODA cannot “default” into ADP testing; the plan 

must specify whether it is or is not subject to ADP (and ACP) testing and must follow its terms. For example, plan language stating that the 

plan is a safe harbor plan only if the employer decides to hand out a safe harbor notice to employees, otherwise the plan will perform the 

ADP test, is not permitted. Rules that apply to both the ACP test safe harbor and the ADP test safe harbor are set forth in this Explanation. 

Explanation #11 summarizes, for the most part, rules that are only applicable to the ACP test safe harbor, or the rules that differ from those 

that apply to the ADP test safe harbor. Thus, Explanation #12 should always be referred to in addition to Explanation #11 with respect to the 

ACP test safe harbor rules. The ADP test safe harbor requires that a plan meet certain contribution requirements (matching or nonelective) 

and a notice requirement. 

The ACP test safe harbor requires that a plan meet the contribution and notice requirements of the ADP test safe harbor and, in addition, 

satisfy a special limit on matching contributions. A plan providing for employee contributions, or matching contributions that fail to satisfy the 

ACP test safe harbor, must satisfy the regular ACP test under section 401(m)(2). 

ADP test safe harbor contributions are QNECs or QMACs and are subject to the same vesting and distributions requirements. (See VI.) 

(Note that under prior law, these amounts were not eligible for inclusion as part of a hardship distribution.) In addition, such contributions 

must satisfy the ADP test safe harbor without regard to permitted disparity under section 401(I).
Page 15 For applications submitted to conform to the 2020 RA List

A plan that uses the safe harbor method to satisfy the ADP and ACP tests for a plan year is treated as using the current year testing method 

for that year and is subject to the rules contained in Regs. section 1.401(k)-3.

Explanation #11 describes the ACP test safe harbor. In some cases it will be unnecessary to complete all of Explanation #11 and the 

accompanying worksheet if the ADP test safe harbor is met. See Explanation #11 to determine whether it must be completed. Regs. 

sections 1.401(k)-3 and 1.401(m)-3 describe the ADP and ACP test safe harbor in greater detail.

Generally, a plan that is intended to satisfy the 401(k) safe harbor requirements for a plan year must, prior to the beginning of the plan year, 

contain language to that effect and must specify the 401(k) safe harbor method that will be used. However, under Regs. section 1.401(k)-

3(f), a plan that provides that it will satisfy the current year ADP (and, if applicable, ACP) testing method for a plan year may be amended 

to specify that the 401(k) safe harbor nonelective contribution method will be used for the plan year, provided special notices are given 

to employees. Also, a safe harbor plan may prospectively reduce or suspend safe harbor contributions during a plan year if either (1) the 

employer is operating at an economic loss as described in section 412(c)(2)(A) or (2) the required notice (see h below) states that the plan 

may be amended during the plan year to reduce or suspend safe harbor contributions and that the reduction or suspension will be effective 

no earlier than 30 days after participants are given a notice of the reduction or suspension. In such case, the plan must also be amended 

to provide that the plan will be satisfied using the current year ADP (and, if applicable ACP) testing method for the plan year. (See Regs. 

section 1.401(k)-3(g).) Under section 416(g)(4)(H), for plan years beginning after 2001, a plan that consists solely of a safe harbor CODA 

and matching contributions that satisfy the ACP test safe harbor is not subject to the top-heavy requirements of section 416 provided 

contributions under the plan go to all employees eligible to make elective contributions

Line a. ADP Test Safe Harbor Matching or Nonelective Contributions There are five, alternative, methods a plan can use to satisfy the ADP 

test safe harbor, listed as (i) through (v) below. 

(i) Safe Harbor Basic Matching Formula The plan must provide for a plan year that a safe harbor matching contribution (a QMAC) is 

required to be made to the plan on behalf of each eligible employee who is a non-highly compensated employee (NHCE) equal to: (1) 

100% of the amount of the employee’s elective contributions that do not exceed 3% of the employee’s compensation for the plan year, plus 

(2) 50% of the amount of the employee’s elective contributions that exceed 3% of the employee’s compensation but that do not exceed 

5% of the employee’s compensation. 

(ii) Safe Harbor Enhanced Matching Formula The plan must provide that an enhanced matching contribution is required to be made to the 

plan on behalf of each eligible NHCE under a formula that, at any rate of elective contributions, provides an aggregate amount of matching 

contributions at least equal to the aggregate amount of matching contributions that would have been provided under the basic matching 

formula. In addition, under an enhanced matching formula, the rate of matching contributions may not increase as an employee’s rate of 

elective contributions increases.

Neither (i) nor (ii) above is satisfied if, at any rate of elective contributions, the rate of matching contributions that would apply with respect 

to any highly compensated employee (HCE) who is an eligible employee is greater than the rate of matching contributions that would apply 

with respect to any NHCE who is an eligible employee and who has the same rate of elective contributions. 

A plan may match elective contributions on a payroll-by-payroll basis instead of an annual basis, if the plan so provides, for purposes 

of satisfying the ADP test safe harbor matching contribution requirements, as long as the plan provides that matching contributions with 

respect to elective contributions made during a plan-year quarter are contributed to the plan no later than the last day of the immediately 

following plan-year quarter. The same rule applies for purposes of employee contributions that are matched. Explanation #11 describes 

additional rules that apply to the ACP test.

A plan meets the ADP test safe harbor with respect to matching contributions if the plan provides matching contributions on both elective 

contributions and employee contributions if, under the terms of the plan, either (1) the matching contributions provided on an employee’s 

elective contributions are not affected by the amount of the employee’s employee contributions or (2) matching contributions are made 

with respect to the sum of an employee’s elective and employee contributions under the same terms as matching contributions are made 

with respect to elective contributions.

(iii) Safe Harbor Nonelective Contribution 

The plan must provide for a plan year that a safe harbor nonelective contribution (a QNEC) is required to be made to the plan on behalf 

of each NHCE who is an eligible employee equal to at least 3% of the employee’s compensation. (Note that safe harbor nonelective 

contributions (and safe harbor matching contributions) may be counted under section 416 of the Code towards the minimum contribution 

requirement for top-heavy plans.)

(iv) Amendment From ADP Testing to Safe Harbor Nonelective Contribution 

A plan that provides that it will satisfy the current year ADP (and, if applicable, ACP) testing method for a plan year may be amended not 

later than 30 days before the last day of the plan year to specify that the safe harbor nonelective contribution method will be used for the 

plan year (including that the safe harbor nonelective contribution will be made), provided that the plan otherwise satisfies the ADP 

(v) Amendment From Safe Harbor Formula to ADP Testing

A safe harbor plan may prospectively reduce or suspend safe harbor contributions during a plan year and instead use the current year ADP 

(and, if applicable, ACP) testing method for the plan year provided that the reduction or elimination of contributions is effective no earlier 

than the later of (1) 30 days after eligible employees are given the supplemental notice (described under Line h below) and (2) the date the 

amendment is adopted. Eligible employees must be given a reasonable opportunity (including a reasonable period) prior to the reduction or 
Page 16 For applications submitted to conform to the 2020 RA List

elimination of safe harbor contributions to change their cash or deferred elections and, if applicable, their employee contribution elections. 

The plan must be amended to provide that the ADP test and, if applicable, the ACP test will be performed and satisfied for the entire plan 

year using the current year testing method, and all other safe harbor requirements must be satisfied through the effective date of the 

amendment. In addition, the plan must provide for and satisfy the supplemental notice requirement described under Line h (iii). Under Regs. 

section 1.401(k)-3(g), a safe harbor plan can reduce or suspend safe harbor contributions only under certain conditions.

401(k)(12)

1.401(k)-3

Line b. The safe harbor matching contribution requirement under Line a above is not satisfied if elective contributions by NHCEs are 

restricted, except for the following: 

(i) restrictions on the frequency and duration of election periods in which eligible employees may make or change cash or deferred elections 

under a plan are allowed, provided that after receipt of the required notice (see below), an employee has a reasonable opportunity (including 

a reasonable period) to make or change a cash or deferred election for the plan year. A 30-day period is deemed to be a reasonable period. 

(ii) restrictions on the amount of elective contributions are allowed, provided that each NHCE who is an eligible employee is permitted to 

make elective contributions in an amount that is at least sufficient to receive the maximum amount of matching contributions available under 

the plan for the plan year, and the employee is permitted to elect any lesser amount of elective contributions. The restrictions under section 

402(g) or 415 of the Code also apply and may restrict the amount of elective contributions allowed. 

(iii) restrictions on the types of compensation that may be deferred are allowed, provided that each NHCE who is an eligible employee is 

permitted to make elective contributions under a reasonable definition of compensation under section 1.414(s)-I(d)(2) of the Income Tax 

Regulations. Thus, the definition for purposes of restricting the types of compensation that may be deferred is not required to satisfy the 

nondiscrimination requirement of section 1.414(s)-I(d)(3). For example, an employer could provide that deferrals may only be made out of 

basic compensation, not including tips. Note that this definition is not the same as the required definition of compensation for purposes of 

the safe harbor matching and nonelective contribution formulas

(iv) A plan does not fail to satisfy the ADP test safe harbor contribution requirement under section 401(k) (or the ACP test safe harbor 

requirements under section 401(m)) merely because employees are required under the plan terms to make cash or deferred or employee 

contribution elections in whole percentages of compensation or whole dollar amounts. (Note that under prior law, an employee’s ability to 

make elective contributions may have been suspended for a period of 6-12 months due to a hardship distribution.)

1.401(k)-3(c)(6)

Line c. Safe harbor matching and nonelective contributions must be immediately nonforfeitable regardless of the age and service of the 

employee or whether the employee is employed on a specific date.

401(k)(12)(E)

Line d. Safe harbor matching and nonelective contributions (QMACs and QNECs), and earnings thereon, are subject to the same 

distribution restrictions as elective contributions. (Note that under prior law, these amounts were ineligible for inclusion as part of a hardship 

distribution.) 

401(k)(12)(E) 

1.401(k)-6

Line e. To satisfy the ADP test safe harbor and the ACP test safe harbor, the plan year must generally be 12 months long, or in the case of 

the first plan year of a newly established plan (other than a successor plan) the plan year is at least 3 months long (or, any shorter period 

in the case of a newly established employer that establishes the plan as soon as administratively feasible after the employer comes into 

existence). Also, safe harbor CODA provisions may be added to an existing profit-sharing, stock bonus, or pre-ERISA money purchase 

pension plan for the first time during a plan year provided the plan is not a successor plan and the CODA is made effective no later than 

3 months prior to the end of the plan year. A similar rule applies for purposes of the ACP test safe harbor in the case of the addition of 

matching contributions for the first time to an existing defined contribution plan at the same time as the adoption of the CODA. The plan year 

may also be less than 12 months if the plan has a change in plan year or terminates, but only if the special requirements in Regs. section 

1.401(k)-3(e)(3) and (4) are satisfied.

1.401(k)-3(e)

Line f. Compensation is the definition provided for under section 1.401(k)-6 of the regulations, which incorporates by reference the definition 

of compensation in section 414(s) of the Code and section 1.414(s)-l of the regulations. However, the rule in section 1.414(s)-I(d)(2)(iii) 

which permits a definition of compensation to exclude all compensation in excess of a certain amount is not applicable. Section 401(a)(17) 

of the Code, imposing a dollar limit, is applicable. Solely for purposes of determining the compensation subject to a participant’s deferral 

election, the employer may use an alternative definition (see Line b.(iii)). 

1.401(k)-3(b)(2), (c)(6) and -6
Page 17 For applications submitted to conform to the 2020 RA List

Line g. An eligible employee is an employee eligible to make elective deferrals under the plan for any part of the plan year or who would be 

eligible to make elective deferrals but for statutory limitations, such as section 402(g) and 415 of the Code. Thus, there can be no last-day 

or 1,000-hour requirement for receiving safe harbor contributions. (Note that under prior law, a participant receiving a hardship distribution 

would be subject to a suspension period of 6–12 months before being eligible to resume deferrals.)

401(k)(12)(B) and (C) 

1.401(k)-3(b)(1) and (c)

Line h. Notice Requirement

(i) Content Requirement

The plan must provide that each eligible employee will be given a comprehensive notice of the employee’s rights and obligations under 

the plan, and such notice must be written in a manner calculated to be understood by the average eligible employee. The notice must 

accurately describe the safe harbor matching or nonelective contribution formula used under the plan, any other contributions under the 

plan including the potential for discretionary matching contributions and the conditions under which the contributions are made, the plan to 

which safe harbor contributions will be made if different than the plan containing the CODA, the type and amount of compensation that may 

be deferred, how to make elections, the periods for making elections, and withdrawal and vesting provisions. The notice can also include 

a statement that the plan’s safe harbor contributions may be reduced or suspended during the year and that, in such case, a supplemental 

notice will be provided to participants explaining the consequences. A safe harbor notice may cross reference the plan’s summary plan 

description for a portion of the information.

401(k)(12)(D)

1.401(k)-3(d)(2)

(ii) Timing Requirement

The notice must be provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, 

within a reasonable period before the employee becomes eligible). The timing requirement is deemed to be satisfied if, at least 30 days 

(and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. If an 

employee becomes eligible after the 90th day before the beginning of the plan year and does not receive the notice for that reason, the 

notice must be provided no more than 90 days before the employee becomes eligible and no later than the date the employee becomes 

eligible. If it is not practical for the notice to be provided by the date an employee becomes eligible, the notice will be treated as timely if it 

provided as soon as practical after that date and the employee is permitted to defer with respect to all compensation earned from the date 

the employee becomes eligible.

401(k)(12)(D)

1.401(k)-3(d)(3) 

(iii) Additional requirements applicable to plans that change methods as described under Line a. iv and v above. 

1) If a plan changes from a current year ADP (and, if applicable ACP) testing method to use the 401(k) safe harbor nonelective 

contribution method, the plan will only satisfy applicable requirements if the notice given to employees before the beginning of 

the plan year provides that the plan may be amended during the plan year to provide that the employer will make a safe harbor 

nonelective contribution of at least 3 percent to the plan for the plan year, and if the plan is so amended, a supplemental notice 

will be given and is given to all eligible employees no later than 30 days prior to the last day of the plan year, stating that the 

nonelective contribution will be made for the plan year (and the amount thereof). 

2) If a plan is amended to reduce or suspend prospectively safe harbor contributions and instead use the current year ADP (and, 

if applicable, ACP) testing method for the plan year, the plan must give a supplemental notice to all eligible employees, at least 

30 days prior to the effective date of the amendment, explaining the consequences of the amendment and informing them of the 

effective date of the reduction or elimination of safe harbor contributions and that they have a reasonable opportunity (including 

a reasonable period) to change their cash or deferred elections and, if applicable, their employee contribution elections. The plan 

must satisfy all the safe harbor requirements through the date of the reduction or suspension.

1.401(k)-3(f) and (g)

Line i. Another Plan

(ii) Safe harbor matching or nonelective contributions may be made to the plan that contains the CODA or to another defined contribution 

plan satisfying section 401(a) or 403(a). The requirements applicable to the safe harbor contributions also apply to the other plan and each 

employee eligible under the plan containing the CODA must be eligible under the same conditions under the other plan. 

401(k)(12)(F)

1.401(k)-3(h)(4)

(iii) The plan must have the same plan year as the plan containing the CODA. 

1.401(k)-3(h)(4)

(iv) Aggregation under section 410(b) is not required for safe harbor contributions to be made to another defined contribution plan, but the 

contributions may be used to satisfy the requirements of the safe harbor with respect to only one plan. 

1.401(k)-3(h)(4)
Page 18 For applications submitted to conform to the 2020 RA List

(iv) Other requirements of section 401(k) apply to a CODA that is treated as satisfying the ADP test safe harbor. Thus, benefits (other than 

matching contributions) must not be contingent on an election to defer, and elective contributions must satisfy allocation and timing rules 

applicable to section 401(k) plans. A plan that satisfies the ADP and ACP test safe harbor must satisfy all other qualification requirements 

of the Code that are applicable to the plan, such as the nondiscriminatory avail-ability of benefits, rights, and features under section 401(a)

(4), and the limitations of sections 401(a)(17), 401(a)(30), and 415.

Section 410(b) also applies to a CODA that is treated as satisfying the ADP test safe harbor. If, pursuant to section 410(b)(4)(B), the plan 

provides that section 410(b) applies separately to the portion of a plan that benefits only employees who satisfy age and service conditions 

under the plan that are lower than the greatest minimum age and service conditions permitted under section 410(a), the plan is treated as 

two separate plans for purposes of section 401(k), and the ADP test safe harbor need not be satisfied with respect to both plans in order for 

one of the plans to take advantage of the ADP test safe harbor. However, a plan that covers employees younger than age 21 or who have 

less than 1 year of service may not exclude such employees from receiving safe harbor contributions. For other requirements relating to 

CODAs, the entire Explanation #12 should be reviewed, and if section 401(m) applies, Explanation #11.

1.401(k)-3(h)

Line j. Under § 1.401(k)-3(e)(1) of the Treasury Regulations, a § 401(k) safe harbor plan must be adopted before the beginning of the plan 

year and be maintained throughout a full 12-month plan year, except as otherwise provided in § 1.401(k)-3(g) (relating to the reduction or 

suspension of safe harbor contributions) or in guidance of general applicability published in the Internal Revenue Bulletin. Similar rules are 

contained at § 1.401(m)-3(f)(1) for safe harbor plans containing § 401(m) matching contributions Therefore, in general, a plan containing 

safe harbor provisions cannot be amended mid-year to change plan terms.

Notwithstanding this prohibition, a plan will not fail to satisfy the requirements to be a § 401(k) or (m) safe harbor plan merely because the 

plan sponsor adopts a mid-year amendment necessary to conform plan terms to be consistent with the decision in U.S. v. Windsor, 570 U.S 

12 (2013) and the guidance in Rev. Rul. 2013-17 and Notice 2014-19. Plan terms otherwise in conflict with the decision must be removed, 

even if the plan is a safe harbor plan, which otherwise would be precluded from making mid-year changes. For additional topical coverage, 

see Explanation #3.

Notice 2014-19, Q&A-8, Notice 2014-37

XI. Qualified Automatic Contribution Arrangements (QACAs)

Qualified automatic contribution arrangements (QACAs) are described in sections 401(k)(13) and 401(m)(12) of the Code, which were 

added by section 902 of PPA ’06, effective for plan years beginning on or after January 1, 2008. A 401(k) plan that meets the requirements 

of section 401(k)(13) is deemed to satisfy the ADP test and a plan that meets the requirements of 401(k)(13) and 401(m)(12) is deemed to 

satisfy the ACP test. Under section 416(g)(4)(H), a QACA also is exempt from the top-heavy rules.

Except for the automatic enrollment features, the lower matching contribution requirement and the vesting applicable to the mandatory 

employer matching or nonelective contributions, the same rules that apply to Safe Harbor CODAs also apply to QACAs. Thus, Part X 

should serve as a reference for this Part XI.

Final regulations for QACAs were published on February 24, 2009, and Rev. Rul. 2009-30, 2009-39 I.R.B. 391, provides guidance on the 

timing of QACA automatic increases.

Line a. A QACA must cover all eligible employees other than those with affirmative elections in effect to have a certain amount (or no 

amount) contributed to the plan as elective contributions. The auto-enrollment feature can be applied to all employees eligible to make 

deferrals but it cannot be limited to just certain groups of employees, such as new hires. All employees subject to auto-enrollment must be 

given a reasonable opportunity to affirmatively elect a different amount of elective contributions or to have no amount contributed.

401(k)(13)

1.401(k)-3(j)(1)

Line b. The auto-enrollment feature in a QACA must satisfy a minimum and maximum requirement for the percentage of compensation 

(“default percentage”) that, in the absence of an affirmative election, is automatically deducted from employees’ wages and contributed 

to the plan as elective contributions. The default percentage cannot exceed 10 percent of compensation (in plan years beginning after 

12/31/2019, the maximum increases to 15 percent after the first year of deferrals.) The minimum default percentage for the initial period 

(the date an employee is first covered by the QACA through the end of the following plan year) is 3 percent. The minimum for the plan year 

following the end of the initial period is 4 percent, 5 percent for the next plan year and, for all following plan years, the minimum is 6 percent 

of compensation. A plan can avoid these automatic increases in the default percentage, often referred to as an “escalator,” by having just 

one default percentage of between 6 and 10 percent of compensation. 

401(k)(13)

1.401(k)-3(j)(2)

Line c. The default percentage under a QACA must also be “uniform.” Generally, this means that the default percentage must be the 

same for every employee with the same number of years or portions of years since the beginning of the employee’s initial period. Also, the 

percentage can vary to accommodate certain statutory restrictions. 

401(k)(13)

1.401(k)-3(j)(2)
Page 19 For applications submitted to conform to the 2020 RA List

Line d. Under a QACA, an employer is required to make either a matching contribution described in (i) or (ii) below or a nonelective 

contribution described in (iii) below.

i) The QACA basic matching contribution is a contribution made to each nonhighly compensated employee equal to 100 percent 

of the employee’s elective contributions that do not exceed 1 percent of the employee’s compensation plus 50 percent of the 

employee’s elective contributions that exceed 1 percent but not 6 percent of the employee’s compensation.

ii) The QACA enhanced matching contribution is at least as generous as in (i) and meets all the requirements in X.a.(ii).

iii) The QACA nonelective contribution is an employer contribution made to each nonhighly compensated employee who is eligible 

under the plan in an amount equal to at least 3 percent of the employee’s compensation, whether or not the employee made any 

elective contributions.

401(k)(13)

1.401(k)-3(k)

Line e. The required employer contributions under the QACA, either matching or nonelective contributions, must be nonforfeitable after an 

employee has completed no more than 2 years of service.

401(k)(13)

1.401(k)-3(k)(3)

Line f. The required employer contributions under the QACA must be subject to the same withdrawal restrictions as QNECs and QMACs. 

See X.d.

401(k)(13)

1.401(k)-3(k)(3)

Line g. The plan year of a QACA must generally be 12 months long except, in certain cases, for the initial and final year. See X.e.

1.401(k)-3(e)

Line h. The compensation used for determining the required employer contributions under the QACA, either matching or nonelective 

contributions, must be “safe harbor compensation” as defined under Regs section 1.401(k)-3(b)(2), and the same definition of compensation 

must be used for plan years beginning on or after January 1, 2010, for purposes of determining default contributions. See X.f.

1.401(k)-3(b), (c), (j)(1), (k)(2)

Line i. The notice requirements for a QACA are generally the same as for a safe harbor CODA (see X.h.), except the QACA notice must 

explain the auto-enrollment feature, the employee’s right to elect a different amount (or no amount) and how default contributions will be 

invested in the absence of an investment directive from the employee. In addition, the notice must be provided sufficiently early so that the 

employee has a reasonable period of time after receipt to make his or her own election and, if the plan so provides, to make investment 

choices. Default contributions must commence with the pay date for the second pay period that begins after the notice is provided or, if 

earlier, the first pay date that occurs 30 or more days after the notice is provided, assuming the employee has no affirmative election in 

effect.

401(k)(13)(E)

1.401(k)-3(d), (k)(4)

XII. Eligible Automatic Contribution Arrangements (EACAs)

Eligible automatic contribution arrangements (EACAs) are defined in Code section 414(w), which was added to the Code by section 

902(d)(1) of PPA '06 and is effective for plan years beginning on or after January 1, 2008. 

An EACA is an arrangement under which: (1) a participant may elect to have the employer make payments as contributions under the plan 

on behalf of the participant, or to the participant directly in cash; (2) the participant is treated as having elected to have the employer make 

such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically 

elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage); and (3) 

participants are provided a notice that satisfies the requirements of section 414(w)(4).

An EACA may permit covered employees to request a withdrawal of default contributions plus attributable earnings (a “permissible 

withdrawal”) within 90 days after first being subject to the EACA. Such a distribution is an exception to the normal withdrawal restrictions 

applicable to elective contributions and is not subject to the 10 percent additional tax under section 72(t). A permissible withdrawal is not 

counted in the ADP test nor towards the employee’s section 402(g) limit. Also, the 21⁄2 month deadline under section 4979 to distribute 

excess contributions and excess aggregate contributions without incurring a 10 percent tax is extended to 6 months, but only if all employees 

eligible to make elective contributions are covered under the EACA. Matching contributions made on permissible withdrawals must be 

forfeited.
Page 20 For applications submitted to conform to the 2020 RA List

Similar to safe harbor CODAs and QACAs, an EACA generally may not be started mid-year. Like these other two arrangements, an EACA 

requires that a notice describing the plan’s features be provided to covered employees before the beginning of each plan year. However, 

unlike safe harbor CODAs and QACAs, an EACA may apply EACA provisions to only some of the employees eligible to make deferrals 

under the plan.

Final regulations under section 414(W) were published on February 24, 2009, and a sample amendment to add an EACA to an existing 

401(k) plan was issued on September 5, 2009, in Notice 2009-65, which is in 2009-39 I.R.B.

Line a. The plan document must specify the employees who are covered under the EACA and must state whether an employee who makes 

an affirmative election remains covered under the EACA. The employees who must be subject to the automatic enrollment provisions under 

an EACA are only those employees who are specified in the plan as being covered employees under the EACA. Automatic enrollment 

under an EACA need not apply to all employees eligible to make elective contributions. All covered employees must receive the EACA 

annual notice, and the 6-month deadline under section 4979 is only available if all eligible employees are covered.

4979(f)

1.414(w)-1(e)(3)

Line b. The default elective contribution under an EACA must be a uniform percentage of compensation. However, the percentage can 

vary to accommodate certain statutory limits or according to the number of years or portions of years since the employee was first covered 

by the EACA. All automatic contribution arrangements that are intended to be EACAs within a plan (or within the disaggregated plan 

under regs section 1.410(b)-7, in the case of a plan subject to section 410(b)) are aggregated. Thus, for example, if a single plan within 

the meaning of section 414(l) covering employees in two separate divisions has two different automatic contribution arrangements that are 

intended to be EACAs, the two automatic contribution arrangements can constitute EACAs only if the default elective contributions under 

the arrangements are the same percentage of compensation.

414(w)(3)(B)

1.414(w)-1(b)(2)

Line c. Each covered employee must be given a written notice of the employee's rights and obligations under the arrangement within a 

reasonable period before each plan year. Under section 414(w)(4), the notice regarding an employee's rights and obligations under the 

arrangement need only be provided to those employees who are covered employees under the EACA as set forth in the plan. Thus, if a 

plan provides that an employee who makes an affirmative election is no longer a covered employee under the EACA, then the employee is 

not required to receive the notice after he or she makes an affirmative election. The notice must accurately describe the default percentage 

under the plan, the employee’s ability to elect a different amount or no amount, how contributions will be invested in the absence of an 

investment direction from the employee, and, if applicable, the employee’s right to make a permissible withdrawal and the procedures for 

making such a withdrawal. The timing requirement is deemed satisfied if the notice is provided at the time specified in regs section 1.401(k)-

3(d)(3) for safe harbor CODAs. See X.h. However, the notice must afford the employee a reasonable period of time after receipt of the 

notice to make his or her own election regarding elective contributions and to choose investments.

414(w)(4)

1.414(w)-1(b)(3)

Line d. A covered employee’s election to withdraw default elective contributions must be made no later than 90 days after the date of the 

first default elective contributions under the EACA. A plan may specify an earlier deadline, but not earlier than 30 days. The effective date 

of the election cannot be later than the pay date for the second pay period beginning after the election or, if earlier, the first pay date that 

occurs at least 30 days after the election.

414(w)(2)(B)

1.414(w)-1(c)(2)

Line e. The amount of the permissible withdrawal must be equal to the amount of default contributions made through the effective date of 

the employee’s withdrawal election adjusted for allocable gains and losses to the date of distribution. If default elective contributions are not 

separately accounted for under the plan, allocable gains and losses are determined under rules similar to those provided in regs section 

1.401(k)-2(b)(2)(iv) for the distribution of excess contributions.

414(w)(2)

1.414(w)-1(c)(3)

Line f. The plan may not charge a higher fee for a permissible withdrawal than would apply to any other cash distribution.

1.414(w)-1(c)(3)(ii)
For applications submitted to conform to the 2020 RA List

Employee Benefit Plan 

Section 401(k) Requirements 

(Worksheet Number 12 – Determination of Qualification)

Form 9002 (Rev. 6-2021) Catalog Number 10096A publish.no.irs.gov Department of the Treasury - Internal Revenue Service

Instructions – All items must be completed unless the contrary is specifically provided. A "Yes" answer indicates a favorable conclusion is

warranted while a "No" answer indicates a problem exists. Please use the space on the worksheet to explain any "No" answer. Numbers in 

brackets refer to EDS paragraph numbers. See Explanation Number 12 for guidance in completing this form.

The technical principles in this worksheet may be changed by future regulations or guidelines.

Name of plan

I. Applicability Plan Reference Yes No N/A

a. Does the plan have a Cash or Deferred Arrangement (CODA)? [1201, 1202] (If

“No,” skip this worksheet; if “Yes,” go on to b.)

b. Is this plan a profit-sharing, stock bonus, pre-ERISA money purchase or a rural

cooperative plan? [1201, 1202] (If “No,” see explanations; if “Yes,” go on to Part II.)

II. Contributions Plan Reference Yes No N/A

a. Does the plan provide each participant with an option to elect to have a contribution

made to the plan on his/her behalf instead of receiving cash and is such election

made before the time at which the employee may receive the amount? [1203]

b. Does the plan separately account for elective contributions, both pre-tax and Roth?

[1204]

c. Does the plan provide that elective contributions will not exceed the limit imposed by

section 402(g) under all the plans of the employer? [1206]

III. Coverage and Participation Plan Reference Yes No N/A

a. Do the employees eligible to benefit under the CODA satisfy the applicable

coverage provisions of section 410(b)? [1207]

b. Does the plan require no more than 1 year of service and an age no greater than 21

to participate in the plan? [1208]

IV. Vesting Plan Reference Yes No N/A

a. Are elective contributions nonforfeitable when made, regardless of a participant’s

age or service? [1209]

V. Discrimination Plan Reference Yes No N/A

a. Does the plan:

(i) Include the Actual Deferral Percentage (ADP) test set forth in section 401(k)(3)

and provide that it will meet the test? [1211, 1212, 1213]

(ii) Incorporate the test by reference, including whether it is using the prior or current

year testing method, and provide that it will meet the test? [1211, 1212, 1213] or

(iii) Contain SIMPLE provisions? (If the plan contains SIMPLE provisions, do not

complete V.b., VI., VII.d.-g. and VIII.)

(iv) Contain safe harbor CODA provisions? (If the plan contains safe harbor CODA

provisions, do not complete V.b, VI and VII.d.-g. of this worksheet. See also

worksheet number 11) or

(v) Contain Qualified Automatic Contribution Arrangement (QACA) provisions? (If

the plan contains QACA provisions, do not complete V.b, VI and VII.d.-g. of this

worksheet.)

b. If the terms of the plan set forth the ADP test rather than incorporate it by reference, does the plan, for purposes of this test:

(i) Take into account the actual deferral ratios of all eligible employees; [1215, 1216]

(ii) Take elective contributions (other than catch-up contributions) into account for a

plan year only if attributable to compensation that would be received by the

employee during the plan year or earned during the plan year and received within

21⁄2 months after the end of the plan year; [1218]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 2 For applications submitted to conform to the 2020 RA List

Form 9002 (Rev. 6-2021) Catalog Number 10096A publish.no.irs.gov Department of the Treasury - Internal Revenue Service

V. Discrimination – Continued Plan Reference Yes No N/A

(iii) Take a contribution into account for a plan year only if it is allocated to the 

participant’s account on a day within the plan year; [1220]

(iv) Treat contributions made under plans that are aggregated for purposes of section 

401(a)(4) or 410(b) as made under a single plan; [1221]

(v) Aggregate all arrangements under which a Highly Compensated Employee 

(HCE) is eligible to make elective contributions for purposes of the HCE’s actual 

deferral ratio; and [1223]

(vi) Determine the ADPs of the HCEs and of all other eligible employees using the 

relevant plan year? [1225]

c. Are elective contributions (including catch-up contributions, if applicable) available to 

eligible employees on a nondiscriminatory basis? [1229]

VI. Qualified Nonelective Contributions (QNECs) and Qualified Matching 

Contributions (QMACs) Plan Reference Yes No N/A

(Complete if the terms of the plan provide that QNECs or QMACs are to be treated as elective contributions for purposes of the ADP test.)

a. If the plan provides QNECs or QMACs, are these contributions:

(i) Immediately vested, without regard to a participant’s age and service; [1274]

(ii) Distributed only under the distribution rules applicable for elective contributions? 

[1274]

b. Are QNECs and QMACs treated as elective contributions only if the conditions 

described in section 1.401(k)-2(a)(6) of the regulations are satisfied? [1276]

VII. Distributions and Corrections Plan Reference Yes No N/A

a. Does the plan allow distributions of elective contributions only if one of the following occurs: [1231, 1232, 1233, 1234]

(i) Death, disability or severance from employment;

(ii) Attainment of age 591⁄2 (profit sharing, stock bonus, rural cooperative plans only);

(iii) Participant hardship (profit-sharing, stock bonus, rural cooperative plans only);

(iv) Excess contributions (see VII.e. and f.) or excess deferrals (see VII.c.);

(v) Termination of the plan without establishment or maintenance of another DC plan 

(other than an ESOP, a SEP, a SIMPLE IRA plan, a section 403(b) plan or a 

section 457 plan); that is, the plan does not allow distributions of contributions 

merely by reason of completion of a stated period of plan participation or the 

lapse of a fixed period of years; or

(vi) A qualified reservist distribution defined in section 72(t)(2)(G)(iii)?

b. If the plan is a profit-sharing, stock bonus, or rural cooperative plan which allows hardship distributions, are such distributions 

made only in accordance with objective standards, set forth in the plan, giving the criteria for determining whether:

(i) The participant has an immediate and heavy financial need, and [1235]

(ii) The distribution is needed to alleviate the hardship? [1237]

c. Does the plan provide a mechanism by which excess deferrals and allocable 

income or loss may be distributed to the participant? [1238]

d. If the plan is using the current-year testing method, does it provide that in the event 

it would otherwise fail the ADP test the employer will make Additional Qualified 

Nonelective Contributions (QNECs) or additional Qualified Matching Contributions 

(QMACs) in order to satisfy the test? (If “No,” check “N/A”)

e. Does the plan provide a mechanism by which elective contributions by the highly 

compensated employees in excess of the amount allowed in the ADP test may be 

distributed or recharacterized or have an alternative method that ensures 

satisfaction of the ADP test?

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 3 For applications submitted to conform to the 2020 RA List

Form 9002 (Rev. 6-2021) Catalog Number 10096A publish.no.irs.gov Department of the Treasury - Internal Revenue Service

VII. Distributions and Corrections – Continued Plan Reference Yes No N/A

f. If the plan provides that excess contributions will be distributed:

(i) Is the amount of the excess contributions to be distributed to individual highly 

compensated employees determined by using the “ratio leveling” method? [1239, 

1240]

(ii) Are distributions of excess contributions determined using the “dollar leveling” 

method? [1241]

(iii) If the answer to VII.c. is “Yes,” does the plan reduce excess contributions to be 

distributed by excess deferrals previously distributed? [1247]

(iv) Does the plan properly determine income to be distributed? [1249]

(v) Will the distribution be made no later than 12 months following the end of the 

plan year? [1251]

g. If the plan provides for recharacterization:

(i) Does the plan permit employee contributions in addition to those resulting from 

recharacterization? [1253]

(ii) Is the amount to be recharacterized determined using the “ratio leveling” 

method? [1239, 1240]

(iii) Are recharacterization of excess contributions determined using the “dollar 

leveling” method? [1241]

(iv) If the answer to VII.c. is “Yes,” does the plan reduce excess contributions to be 

recharacterized by excess deferrals previously distributed? [1247]

(v) Will recharacterization occur within 21⁄2 months of the end of the plan year? [1251]

VIII. Definition of Highly Compensated Employee/Compensation Plan Reference Yes No N/A

a. Does the plan define a Highly Compensated Employee (HCE) in accordance with 

section 414(q)? [1257, 1258]

b. For this definition does the plan:

(i) Define determination year, look-back year, compensation, and if applicable, top 

paid group; and

(ii) Apply the aggregation rules of section 414? [1261, 1262, 1263]

c. Does the plan define compensation and specify the period used to determine an 

employee’s compensation for purposes of the ADP test? [1271, 1272]

d. Does the plan limit cash or deferred elections to amounts that are compensation 

within the meaning of section 415(c)(3)? [1273]

IX. SIMPLE Plan Provisions Plan Reference Yes No N/A

(Complete if the plan contains SIMPLE provisions)

a. Does the plan prohibit eligible employees from participating in another plan of the 

employer? [1278]

b. Is the plan year the calendar year? [1279]

c. Does the plan define compensation properly? [1280]

d. With respect to contributions under the plan:

(i) Are elective contributions limited to $10,000 as adjusted? [1281]

(ii) Is the employer required to either match employee’s elective contributions 

(limited to 3 percent of compensation) or contribute 2 percent of compensation to 

all eligible employees? [1282]

(iii) Are no other contributions permitted under the plan? [1283]

(iv) Are all contributions under the plan nonforfeitable when made? [1284]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 4 For applications submitted to conform to the 2020 RA List

Form 9002 (Rev. 6-2021) Catalog Number 10096A publish.no.irs.gov Department of the Treasury - Internal Revenue Service

IX. SIMPLE Plan Provisions – Continued Plan Reference Yes No N/A

e. Are employees allowed to make, amend or terminate deferral elections at the proper 

times? [1285]

f. Is the employer required to give proper notice of the plan to employees? [1286]

X. Safe Harbor CODA Provisions Plan Reference Yes No N/A

(Complete if the plan contains Safe Harbor CODA provisions)

a. Does the plan provide for one of the following:

(i) The safe harbor basic matching formula,

(ii) A safe harbor enhanced matching formula,

(iii) Safe harbor nonelective contributions,

(iv) An amendment that changes from the current year ADP (and, if applicable ACP) 

testing method to a safe harbor nonelective contribution method for the plan 

year, or 

(v) An amendment that changes from a safe harbor contribution method to the 

current year ADP (and, if applicable, ACP) testing method during the plan year? 

[1287, 1288, 1289, 1290, 1291]

b. If the plan contains a safe harbor matching contribution formula, does the plan 

contain only permissible restrictions on elective contributions by NHCEs, such that: 

(i) restrictions on election periods must give the employee a reasonable 

opportunity, including a reasonable period, to make or change a cash or 

deferred election [1292] 

(ii) each non-highly compensated employee (NHCE) who is an eligible employee is 

permitted to make elective contributions in an amount sufficient to receive the 

maximum amount of matching contributions available under the plan for the plan 

year or is allowed to elect a lesser amount of elective contributions [1293] 

(iii) a reasonable definition of compensation under section 1.414(s)-l(d)(2) is used in 

limiting the types of compensation that may be deferred by NHCEs)? [1294]

c. Does the plan provide that safe harbor matching contributions or nonelective 

contributions are immediately nonforfeitable? [1295]

d. Does the plan contain the appropriate restrictions on distributions of safe harbor 

matching and nonelective contributions and earnings? [1296]

e. Is the plan year 12 months long, or a permissible shorter length if it is a newly 

established plan, or, if applicable, does the plan meet the special requirements 

applicable to a CODA that is added to an existing profit-sharing, stock bonus or preERISA money purchase pension plan for the first time during a plan year (and the 

similar rules for matching contributions added to a defined contribution plan for the 

first time, if applicable)? [1297]

f. Does the plan use the correct definition of compensation? [1298]

g. Does the plan provide that safe harbor matching contributions must be made on 

behalf of all NHCEs who are eligible employees and who make elective 

contributions or that safe harbor nonelective contributions must be made on behalf 

of all NHCEs who are eligible employees? [1299]

h. Does the plan provide that proper notice is given (satisfying content and timing 

requirements), including the additional plan provisions applicable to plans that 

change their testing methods during the plan year as described in X.a.(iv) and (v) 

above? [1300, 1301]

i. If safe harbor contributions will be made to another defined contribution plan:

(i) Is the name of the other plan specified in this plan,

(ii) Does the other plan meet the same requirements in satisfying the safe harbor 

contribution requirements, and

(iii) Does the plan have the same plan year? [1302]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 5 For applications submitted to conform to the 2020 RA List

Form 9002 (Rev. 6-2021) Catalog Number 10096A publish.no.irs.gov Department of the Treasury - Internal Revenue Service

X. Safe Harbor CODA Provisions – Continued Plan Reference Yes No N/A

(Complete if the plan contains Safe Harbor CODA provisions)

(iv) Does the plan comply with all other applicable requirements of section 401(k) 

and other sections of the Internal Revenue Code? (Complete other applicable 

portions of Worksheet Number 12 for the CODA requirements, and if section 401

(m) applies, see Worksheet Number 11.) [1303]

j. Are mid-year amendments limited to the extent necessary to remove plan provisions 

inconsistent with the decision in U.S. v. Windsor, 570 U.S 12 (2013) and the 

guidance in Rev. Rul. 2013-17 and Notice 2014-19? [1326]

XI. Qualified Automatic Contribution Arrangements (QACAs) Plan Reference Yes No N/A

(Complete if the plan contains QACA Provision)

a. Does automatic enrollment apply to all employees eligible to make elective 

contributions who do not have an affirmative election in effect? [1304]

b. Does the plan provide for a rate of automatic contributions that satisfies section 

401(k)(13)? [1305]

c. Is the default percentage uniform for all employees, except as provided in the 

regulations? [1306]

d. Does the plan provide for one of the following:

(i) The QACA basic matching formula, [1307]

(ii) A QACA enhanced matching formula, [1308] or

(iii) The QACA nonelective contributions? [1309]

e. Are QACA required employer matching or nonelective contributions nonforfeitable 

after no more than 2 years of service? [1310]

f. Does the plan contain the appropriate distribution restrictions on QACA required 

employer matching or nonelective contributions? [1311]

g. Does the plan provide that plan years are 12 months long? [1312]

h. Does the plan use the correct definition of compensation? [1313]

i. Does the plan satisfy the notice requirements, including timing and content? [1314]

XII. Eligible Automatic Contribution Arrangements (EACAs) Plan Reference Yes No N/A

(Complete if the plan contains EACA provisions)

a. Does the plan identify covered employees under the EACA? [1320]

b. Is the default percentage uniform for all covered employees? [1321]

c. Does the plan provide that proper notice will be given to covered employees within a 

reasonable period before each plan year? [1322]

d. Does the plan require that elections for permissible withdrawals be made within 90 

days? [1323]

e. Does the plan specify the correct amount of a permissible withdrawal? [1324]

f. Are the fees charged for a permissible withdrawal no more than for any other cash 

distribution? [1325]

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
For applications submitted to conform to the 2020 RA List

Employee Plan Deficiency Checksheet

Attachment Number 12

Section 401(k) Requirements

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

For IRS Use Please furnish the amendment(s) requested in the section(s) checked below.

1201, 1202

I.b.

A plan that is not a profit-sharing, stock bonus, pre-ERISA money purchase pension, or rural cooperative plan 

will fail to satisfy the requirements of section 401(a) of the Code if the plan includes a Cash or Deferred 

Arrangement (CODA). A cash or deferred arrangement is an arrangement under which an employee may elect, 

with respect to amounts not currently available to the employee and not designated or treated as after tax

employee contributions, to have the employer contribute such amounts to the trust or provide such amounts to 

the employee. Since your plan is not one described in this section, it may not include a cash or deferred 

arrangement and should be amended accordingly. IRC section 401(k)(1) and Regs. section 1.401(k)-1(a).

1203

II.a.

Section of the plan should be amended to provide that an employee’s election to defer may be made 

only with respect to an amount that the employee could otherwise elect to receive in cash and that is not 

currently available to the employee, for example, an amount that the employee is not eligible to receive at the 

time of the election to defer. IRC section 401(k)(2)(A) and Regs. sections 1.401(k)-1(a)(3) and 1.401(k)-1(e)(2). 

1204

II.b.

Section of the plan should be amended to provide for a separate accounting for the portion of each 

employee’s benefit under the plan that is attributable to elective contributions (and any other amounts treated as 

elective contributions). If applicable, each employee’s Roth elective contributions and properly attributable 

earnings must be kept in an account separate from all other accounts under the plan. Regs. section 1.401(k)-1

(e)(3) and (f)(2). 

1206

II.c.

Section of the plan should be amended to provide that a participant’s elective contributions for a 

calendar year under the plan and all other plans, contracts and arrangements of the employer will not exceed 

the limit imposed by section 402(g) of the Code for the calendar year. IRC section 401(a)(30). 

1207

III.a.

It must be demonstrated that the employees eligible under the cash or deferred arrangement satisfy the 

coverage requirements of section 410(b). IRC section 401(k)(3)(A)(i) and Regs. section 1.401(k)-1(b)(1). 

1208

III.b.

Section of the plan should be amended to allow elective contributions after no more than one year of 

service. The plan may impose a minimum age requirement not greater than 21. IRC section 401(k)(2)(D).

1209

IV.a.

Section of the plan should be amended to provide that each employee’s right to the amount 

attributable to elective contributions is immediately nonforfeitable regardless of the participant’s age and service. 

IRC section 401(k)(2)(C) and Regs. section 1.401(k)-1(c). 

1211, 1212, 1213

V.a.(i), (ii)

Section of the plan should be amended to provide that the plan will meet the nondiscrimination test 

set forth in section 401(k)(3)(A)(ii) of the Code that applies to elective contributions. Under this test, the Actual 

Deferral Percentage (ADP) for the group of eligible highly compensated employees for the current plan year 

may not exceed the greater of (a) 125 percent of the ADP for all other eligible employees for the prior plan year 

or (b) the lesser of twice the ADP for all other eligible employees for the prior plan year, or such ADP for all 

other eligible employees for the prior plan year plus 2 percent. If the plan is using the current year testing 

method, then “the current plan year” should be substituted for “the prior plan year” in the previous sentence. The 

ADP for a group of eligible employees is the average of the ratios (calculated separately for each employee) of 

the amount of elective contributions (and other contributions treated as elective contributions) made on behalf of 

each employee for the relevant plan year, divided by the employee’s compensation for that plan year. Elective 

contributions are any employer contributions to a plan that were subject to a cash or deferred election under a 

cash or deferred arrangement. For the purpose of this requirement, the plan may incorporate by reference the 

provisions of section 401(k)(3) of the Code and section 1.401(k)-2 of the regulations. IRC section 401(k), Regs. 

sections 1.401(k)-1(e)(7) and 1.401(k)-2(a)(1)(i). 

1215, 1216

V.b.(i)

Section of the plan should be amended to provide that the plan will take into account the actual 

deferral ratios of all eligible employees for purposes of the Actual Deferral Percentage (ADP) test in section 401

(k). For this purpose, an eligible employee is any employee who is directly or indirectly eligible to make a cash 

or deferred election under the plan for all or a portion of a plan year and includes: an employee who would be a 

plan participant but for the failure to make required contributions; an employee whose eligibility to make elective 

contributions has been suspended because of an election (other than certain one-time elections) not to 

participate, a distribution, or a loan; and, an employee who cannot defer because of the section 415 limits on 

annual additions. In the case of an eligible employee who makes no elective contributions the deferral ratio that 

is to be included in determining the ADP is zero. IRC section 401(k)(3)(B) and Regs. section 1.401(k)-6. If an 

election has been made to apply section 410(b)(4)(B), the plan may provide that eligible non-highly 

compensated employees who have not met the minimum age and service requirements under section 410(a)(1)

(A) are excluded from the ADP test. Section 401(k)(3)(F).

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 2 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1218

V.b.(ii)

Section of the plan should be amended to provide that an elective contribution will be taken into 

account under the actual deferral percentage test of section 401(k)(3)(A) of the Code for a plan year only if it 

relates to compensation that either would have been received by the employee in the plan year (but for the 

deferral election) or is attributable to services performed by the employee in the plan year and would have been 

received by the employee within 21⁄2 months after the close of the plan year (but for the deferral election). Regs. 

section 1.401(k)-2(a)(4).

1220

V.b.(iii)

Section of the plan should be amended to provide that an elective contribution will be taken into 

account under the actual deferral percentage test of section 401(k)(3)(A) of the Code for a plan year only if it is 

allocated to the employee as of a date within that plan year. For this purpose, an elective contribution is 

considered allocated as of a date within a plan year if the allocation is not contingent on participation or 

performance of services after such date and the elective contribution is actually paid to the trust no later than 12 

months after the plan year to which the contribution relates. Regs. section 1.401(k)-2(a)(4).

1221

V.b.(iv)

Section of the plan should be amended to provide that for purposes of determining whether a plan 

satisfies the actual deferral percentage test of section 401(k), all elective contributions that are made under two 

or more plans that are aggregated for purposes of section 401(a)(4) or 410(b) (other than section 410(b)(2)(A)

(ii)) are to be treated as made under a single plan and that if two or more plans are permissively aggregated for 

purposes of section 401(k), the aggregated plans must also satisfy sections 401(a)(4) and 410(b) as though 

they were a single plan. IRC section 401(k)(3) and Regs. section 1.401(k)-1(b)(4).

1223

V.b.(v)

Section of the plan should be amended to provide that in calculating the actual deferral percentage 

for purposes of section 401(k), the actual deferral ratio of a highly compensated employee will be determined by 

treating all cash or deferred arrangements under which the highly compensated employee is eligible (other than 

those that may not be permissively aggregated) as a single arrangement. IRC section 401(k)(3) and Regs. 

section 1.401(k)-2(a)(3)(ii).

1225

V.b.(vi)

Section of the plan should be amended to provide that the Actual Deferral Percentage (ADP) of 

Highly Compensated Employees (HCEs) and Non-Highly Compensated Employees (NHCEs) are determined 

for the relevant plan years. If the plan is using the prior year testing method, the ADP of HCEs is determined for 

the current plan year (the “testing year”) and the ADP of NHCEs is determined for the prior plan year. If, on the 

other hand, the plan is using the current year testing method, the ADPs of both HCEs and NHCEs are 

determined for the current year. IRC sections 401(k)(3)(A) and (B).

1229

V.c.

Section of the plan should be amended so that the availability of elective contributions (including 

catch-up contributions under section 414(v) of the Code, if applicable) does not discriminate in favor of highly 

compensated employees. IRC section 401(a)(4) and 414(v) and Regs. sections 1.401(k)-1(a)(4)(iv) and 1.414

(v)-1(e).

1274

VI.a.(i), (ii)

Nonelective contributions and matching contributions may be treated as elective contributions for purposes of 

the actual deferral percentage test of section 401(k) only if such contributions are nonforfeitable when made to 

the plan and subject to the same distribution restrictions that apply to elective contributions. Nonelective 

contributions and matching contributions that may be treated as elective contributions must satisfy these 

requirements without regard to whether they are actually taken into account as elective contributions. Section 

 of the plan should be amended accordingly. Regs. section 1.401(k)-6.

1276

VI.b.

Section of the plan should be amended to provide that nonelective contributions and/or matching 

contributions may be treated as elective contributions only if the conditions described in section 1.401(k)-2(a)(6) 

of the regulations are satisfied. Regs. section 1.401(k)-2(a)(6).

1231, 1232, 

1233, 1234

VII.a.

Section of the plan should be amended to provide that amounts attributable to elective contributions, 

including pre-tax elective contributions rolled into a participant’s Roth elective contribution account in the same 

plan through an in-plan Roth rollover, may not be distributed earlier than upon one of the following events: 1. 

The employee’s retirement, death, disability or severance from employment; 2. The termination of the plan 

without establishment or maintenance of another defined contribution plan (other than an ESOP, a SEP, a 

SIMPLE IRA plan, a section 403(b) plan or a section 457 plan); 3. In the case of a profit-sharing, stock bonus or 

rural cooperative plan, the employee’s attainment of age 591⁄2 or the employee’s hardship; or 4. in the case of a 

qualified reservist distribution described in section 72(t)(2)(G), the date the employee is ordered or called to 

active duty. Paragraph 2 above applies only if the distribution is in the form of a lump sum. In addition, 

distributions may be made to participants affected by certain natural disasters, as described in the particular 

disaster legislation. IRC sections 401(k)(2)(B), (7)(C) and (10), Regs. section 1.401(k)-1(d)(1) and Notice 

2013-74, 2013-52 I.R.B. 819.

1235

VII.b.(i)

Section of the plan should be amended to set forth nondiscriminatory and objective standards for 

determining whether an employee, for purposes of entitlement to a hardship distribution, has an immediate and 

heavy financial need. See section 1.401(k)-1(d)(3)(iii)(B) of the regulations regarding certain deemed immediate 

and heavy financial needs.

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 3 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1237

VII.b.(ii)

Section of the plan should be amended to provide that a hardship distribution may be made only if it 

is necessary to satisfy an immediate and heavy financial need. For this purpose, a distribution is not necessary 

to the extent it exceeds the amount necessary (including taxes) to relieve the need or to the extent the need 

may be satisfied from other resources reasonably available to the employee, and the employee represents that 

insufficient cash or other liquid assets are available to satisfy the financial need. See section 1.401(k)-1(d)(3)(iv)

(E) of the regulations regarding distributions that are deemed necessary to satisfy financial need.

1238

VII.c.

Section of the plan should be amended to provide that an employee’s excess deferrals arising under 

this plan and any related employer’s plan will be distributed, along with allocable earnings and losses by the first 

April 15th following the year in which the excess arose. A plan may provide that an employee is deemed to notify 

the employer of excess deferrals in this situation. Allocable income or loss is determined only through the end of 

the taxable year of the excess. The plan may use any reasonable method for calculating the income or loss, 

provided the method is used consistently and is the normal method used by the plan for allocating income or 

loss to participants’ accounts. IRC section 401(a)(30) and Regs. sections 1.401(a)-30(a) and 1.402(g)-1(e).

1239, 1240

VII.f.(i), g.(ii)

Section of the plan should be amended to provide that the amount of excess contributions for a highly 

compensated employee will be determined in the following manner. First, determine how much the Actual 

Deferral Ratio (ADR) of the highly compensated employee with the highest ADR would have to be reduced to 

satisfy the Actual Deferral Percentage (ADP) test or cause such ratio to equal the ADR of the highly 

compensated employee with the next highest ratio. Second, this process is repeated until the ADP test would be 

satisfied. The amount of excess contributions is equal to the sum of these hypothetical reductions multiplied, in 

each case, by the highly compensated employee's compensation. IRC section 401(k)(8)(B) and Regs. section 

1.401(k)-2(b)(2)(ii).

1241

VII.f.(ii), g.(iii)

Section of the plan should be amended to provide that the identity of the highly compensated 

employees subject to distribution (or recharacterization) of excess contributions will be determined using the 

“dollar leveling method” starting with the highly compensated employee with the greatest dollar amount of 

elective and other contributions treated as elective contributions for the plan year until the amount of excess 

contributions has been accounted for. IRC section 401(k)(8)(C) and Regs. section 1.401(k)-2(b)(2)(iii).

1247

VII.f.(iii), g.(iv)

Section of the plan should be amended to provide that the amount of excess contributions to be 

distributed or recharacterized shall be reduced by excess deferrals previously distributed for the taxable year 

ending in the same plan year and excess deferrals to be distributed for a taxable year will be reduced by excess 

contributions previously distributed or recharacterized for the plan year beginning in such taxable year. Regs. 

section 1.401(k)-2(b)(4).

1249

VII.f.(iv)

Section of the plan should be amended to provide that the distribution of excess contributions will 

include the income or loss allocable thereto. The income or loss allocable to excess contributions includes 

income or loss for the plan year for which the excess contributions were made and, in certain years before 

2008, gap-period income or loss. For plan years beginning before 2006, income or loss allocable to the “gap 

period” (the period between the end of the plan year in which the ADP was exceeded and the date of the 

distribution of excess contributions) could be disregarded in determining income or loss on excess contributions 

for such years. Allocable income or loss does not include allocable income or loss for the gap period. See 

section 1.401(k)-2(b)(2)(iv) of the regulations for a description of the manner in which income or loss allocable to 

excess contributions is to be calculated. IRC section 401(k)(8)(A) and Regs. section 1.401(k)-2(b)(2)(iv).

1251

VII.f.(v)

Failure to correct excess contributions by 12 months following the end of the plan year for which they were 

made will cause the cash or deferred arrangement to fail to satisfy the requirements of section 401(k)(3) for the 

plan year for which the excess contributions were made and for all subsequent years they remain in the trust. 

Also, the employer will be liable for a 10 percent excise tax on the amount of excess contributions unless they 

are distributed within 21⁄2 months (6 months in the case of certain plans that include an eligible automatic 

contribution arrangement within the meaning of section 414(w)) after the close of the plan year for which they 

were made. Section of the plan should be amended accordingly. IRC sections 401(k)(8)(A) and 4979

and Regs. section 1.401(k)-2(b)(5).

1253

VII.g.(i)

Section of the plan should be amended to provide that excess contributions will not be 

recharacterized with respect to a highly compensated employee to the extent that the recharacterized amounts, 

in combination with employee contributions actually made by the employee, exceed the maximum amount of 

employee contributions (determined prior to applying section 401(m)(2)(A) of the Code) that the employee is 

permitted to make under the plan in the absence of recharacterization. Regs. section 1.401(k)-2(b)(3)(iii)(B).

1257, 1258

VIII.a.

Section of the plan should be amended to define highly compensated employee as an employee who:

1. was a 5-percent owner, as defined in section 416(i)(1)(A)(ii), at any time during the determination year or the 

look-back year, or 2. had compensation from the employer for the look-back year in excess of $80,000 (as 

adjusted) and, if the employer so elects in the plan, was in the top-paid group for the look-back year. IRC 

section 414(q), Regs. section 1.414(q)-1T and Notice 97-45, 1997-2 C.B. 296. 

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 4 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1261, 1262, 1263

VIII.b.

For purposes of the definition of highly compensated employee, section of the plan should be 

amended to provide that: 1. The determination year is the plan year for which the determination of who is highly 

compensated is being made. 2. The look-back year is the 12-month period immediately preceding the 

determination year, or if the employer so elects in the plan, the calendar year beginning with or within such 12-

month period. 3. Compensation is compensation within the meaning of section 415(c)(3). 4. Employers 

aggregated under section 414(b), (c), (m), or (o) are treated as a single employer. 5. If the employer has made a 

top-paid group election, the top paid group consists of the top 20 percent of employees ranked on the basis of 

compensation received during the look-back year. For purposes of determining the number of employees in the 

top-paid group, employees described in section 414(q)(5) and Q&A 9(b) of section 1.414(q)-1T of the 

regulations are excluded. IRC section 414(q), Regs. section 1.414(q)-1T and Notice 97-45, 1997-2 C.B. 296.

1271, 1272

VIII.c.

Section of the plan should be amended to define compensation, for purposes of the actual deferral 

percentage test of section 401(k) and the determination of excess contributions, in a manner that satisfies 

section 414(s) and over a period specified in section 1.401(k)-6 of the regulations. A definition will satisfy section 

414(s) if it conforms to one of the definitions described in Regs. sections 1.414(s)-1(c)(2) and 1.414(s)-1(c)(3). 

Alternatively, submit a demonstration that the definition is nondiscriminatory. IRC sections 401(k)(9) and 414(s) 

and Regs. sections 1.401(k)-6 and 1.414(s)-1.

1273

VIII.d.

Section of the plan should be amended to provide that cash or deferred elections can only be made 

with respect to amounts that are compensation within the meeting of section 415(c)(3). Regs. section 1.401(k)-1

(e)(8).

1278

IX.a.

Section of the plan should be amended to provide that no contributions can be made, or benefits 

accrued for services during the year, on behalf of any eligible employee under any other plan, contract, pension, 

or trust described in section 219(g)(5)(A) or (B), maintained by the employer. IRC section 401(k)(11)(C).

1279

IX.b.

Section of the plan should be amended to provide that the plan year is the calendar year. IRC 

sections 401(k)(11)(D) and 408(p)(6)(C).

1280

IX.c.

Section of the plan should be amended to provide that for purposes of applying the 401(k) SIMPLE 

provisions, compensation has the meaning in section 408(p)(6)(A) as limited to the section 401(a)(17) amount. 

IRC sections 401(a)(17), 401(k)(11)(D) and 408(p)(6)(A).

1281

IX.d.(i)

Section of the plan should be amended to provide that no employee may defer more than the 

applicable dollar amount under Code section 408(p)(2)(E) (plus catch-up contributions, if applicable) annually to 

the plan. IRC sections 401(k)(11)(B), 408(p)(2)(E) and 414(v).

1282

IX.d.(ii)

Section of the plan should be amended to provide that, each year, the employer will contribute either 

a matching contribution (limited to 3 percent of the employee’s compensation) to each employee who made 

elective contributions or a 2 percent nonelective contribution to each employee who earned at least $5,000 (or a 

lesser amount) for the year. IRC section 401(k)(11)(B).

1283

IX.d.(iii)

Section of the plan should be amended to provide that no other contribution may be made to the plan. 

IRC section 401(k)(11)(B).

1284

IX.d.(iv)

Section of the plan should be amended to provide that all benefits attributable to contributions made 

under the plan are nonforfeitable at all times. IRC section 401(k)(11)(A)(iii).

1285

IX.e.

Section of the plan should be amended to provide that employees can make deferral elections during 

the applicable 60-day periods described in section 401(k)(11)(B)(iii) and Regs. section 1.401(k)-4(d). Employees 

must be permitted to terminate an election any time during the year. IRC section 401(k)(11)(B)(iii) and Regs. 

section 1.401(k)-4(d).

1286

IX.f.

Section of the plan should be amended to provide that the employer will notify each eligible 

employee, prior to the 60-day election period described in section 401(k)(11)(B)(iii) and Regs. section 1.401(k)-4

(d), of the employee’s eligibility under the plan and the specific employer contributions that will be made for the 

year. IRC section 401(k)(11)(B)(iii) and Regs. section 1.401(k)-4(d).

1287

X.a.(i)

Section of the plan should be amended to provide that a safe harbor matching contribution will be 

made to the plan on behalf of each eligible Non-Highly Compensated Employee (NHCE) equal to: 100 percent 

of the amount of the employee’s elective contributions that do not exceed 3 percent of the employee’s 

compensation for the plan year, plus 50 percent of the amount of the employee’s elective contributions that 

exceed 3 percent of the employee’s compensation but that do not exceed 5 percent of the employee’s 

compensation. IRC section 401(k)(12)(B)(i). 

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 5 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1288

X.a.(ii)

Section of the plan should be amended to provide that an enhanced matching contribution will be 

made to the plan under a formula that at any rate of elective contributions provides an aggregate amount of 

matching contributions at least equal to the aggregate amount of matching contributions that would have been 

provided under the basic matching formula, and the formula provides that the rate of matching contributions 

does not increase as an employee’s rate of elective contributions increases. IRC section 401(k)(12)(B)(iii). 

1289

X.a.(iii)

Section of the plan should be amended to provide that a safe harbor nonelective contribution will be 

made to the plan on behalf of each Non-Highly Compensated Employee (NHCE) who is an eligible employee in 

an amount equal to at least 3 percent of the employee’s compensation. IRC section 401(k)(12)(C).

1290

X.a.(iv)

Section of the plan should be amended to provide that a change from the current year Actual Deferral 

Percentage (ADP) (and, if applicable, Actual Contribution Percentage (ACP)) testing method to a safe harbor 

nonelective contribution method will be made. Regs. section 1.401(k)-3(f).

1291

X.a.(v)

Section of the plan should be amended to provide that a change from a safe harbor matching 

contribution method to the current year Actual Deferral Percentage (ADP) (and, if applicable, Actual Contribution 

Percentage (ACP)) testing method will be made. Regs. section 1.401(k)-3(g).

1292

X.b.(i)

Section of the plan should be amended to contain only appropriate restrictions on elective 

contributions by Non-Highly Compensated Employees (NHCEs) including that restrictions on election periods 

must give the employee a reasonable opportunity, including a reasonable period, to make or change a cash or 

deferred election. Regs. section 1.401(k)-3(c)(6).

1293

X.b.(ii)

Section of the plan should be amended to provide that the restrictions on the amount of elective 

contributions are permissible only if each Non-Highly Compensated Employee (NHCE) who is an eligible 

employee is permitted to make elective contributions in an amount sufficient to receive the maximum amount of 

matching contributions available under the plan for the plan year or is allowed to elect a lesser amount of 

elective contributions. Regs. section 1.401(k)-3(c)(6).

1294

X.b.(iii)

Section of the plan should be amended to contain a reasonable definition of compensation under 

section 1.414(s)-1(d)(2) in limiting the types of compensation that may be deferred for Non-Highly Compensated 

Employees (NHCEs). Regs. section 1.401(k)-3(c)(6).

1295

X.c.

Section of the plan should be amended to provide that safe harbor matching and nonelective 

contributions are nonforfeitable when made to the plan. IRC section 401(k)(12)(E).

1296

X.d.

Section of the plan should be amended to provide that safe harbor matching and nonelective 

contributions, and earnings thereon, are subject to the same distribution restrictions as elective contributions. 

IRC section 401(k)(12)(E).

1297

X.e.

Section of the plan should be amended to provide that the plan year is 12 months long (unless it is 

the first plan year of a newly established plan). If a CODA is added to an existing plan, the plan should be 

amended to provide that the CODA (and the addition of matching contributions, if applicable) is effective not 

later than 3 months prior to the end of the plan year. Regs. section 1.401(k)-3(e).

1298

X.f.

Section of the plan should be amended to define compensation in accordance with section 1.401(k)-6 

of the regulations, and to provide that compensation in excess of a certain amount may not be excluded in this 

definition, except that the limit of section 401(a)(17) applies.

1299

X.g.

Section of the plan should be amended to contain the proper definition of eligible employee for safe 

harbor matching contributions.

1300, 1301

X.h.

Section of the plan should be amended to provide that the employer must distribute a notice to each 

eligible employee that comprehensively describes the types of safe harbor contributions made, the plan to which 

they are made, the type and amount of compensation that may be deferred, how to make elections and the 

period for making elections, and withdrawal and vesting provisions. If applicable, the plan should be amended to 

provide for a supplemental notice to be given if a plan changes from a current year Actual Deferral Percentage 

(ADP) (or Actual Contribution Percentage (ACP)) testing method to the safe harbor nonelective contribution 

method, or if a plan reduces or suspends safe harbor contributions and changes to the current year ADP (and 

ACP) testing method. Regs. section 1.401(k)-3(d), (f) and (g). 

1302

X.i.

Section of the plan should be amended to specify the name of the other plan to which safe harbor 

contributions will be made. Regs. section 1.401(k)-3(h)(4).

1303

X.i.(v)

Section of the plan should be amended to provide that the other requirements of section 401(k) (other 

than the nondiscrimination test of section 401(k)(3)(A)(ii)) apply to a CODA that satisfies the Actual Deferral 

Percentage (ADP) test safe harbor. A safe harbor CODA cannot “default” into ADP testing; the plan must 

specify whether it is or is not subject to ADP (and ACP) testing and must follow its terms. For example, plan 

language stating that the plan is a safe harbor plan only if the employer decides to hand out a safe harbor notice 

to employees, otherwise the plan will perform the ADP test, is not permitted.

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 6 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1304

XI.a.

Section of the plan should be amended to provide that the QACA will cover all eligible employees 

other than those with affirmative elections in effect to have a certain amount (or no amount) contributed to the 

plan as elective contributions. The auto-enrollment feature can be applied to all employees eligible to make 

deferrals but it cannot be limited to just certain groups of employees, such as new hires. All employees subject 

to auto-enrollment must be given a reasonable opportunity to affirmatively elect a different amount of elective 

contributions or to have no amount contributed. IRC section 401(k)(13) and Regs. section 1.401(k)-3(j)(1).

1305

XI.b.

Section of the plan should be amended to provide that the auto-enrollment feature in a QACA will 

satisfy the statutory minimum and maximum requirement for the percentage of compensation (“default 

percentage”) that, in the absence of an affirmative election, will be automatically deducted from employees’ 

wages and contributed to the plan as elective contributions. The default percentage cannot exceed 10 percent 

of compensation (for plan years beginning after 12/31/2019, the maximum increases to 15 percent after the first 

year of employee deferrals). The minimum default percentage for the initial period (the date an employee is first 

covered by the QACA through the end of the following plan year) is 3 percent. The minimum for the plan year 

following the end of the initial period is 4 percent, 5 percent for the next plan year and, for all following plan 

years, the minimum is 6 percent of compensation. IRC section 401(k)(13) and Regs. section 1.401(k)-3(j)(2).

1306

XI.c.

Section of the plan should be amended to provide that the default percentage under the QACA is 

“uniform.” Generally, this means that the default percentage must be the same for every employee with the 

same number of years or portions of years since the beginning of the employee’s initial period. Also, the 

percentage can vary to accommodate certain statutory restrictions. IRC section 401(k)(13) and Regs. section 

1.401(k)-3(j)(2).

1307

XI.d.(i)

Section of the plan should be amended to provide that a matching contribution will be made to each 

non-highly compensated employee equal to 100 percent of the employee’s elective contributions that do not 

exceed 1 percent of the employee’s compensation plus 50 percent of the employee’s elective contributions that 

exceed 1 percent but not 6 percent of the employee’s compensation. IRC section 401(k)(13)(D) and Regs 

section 1.401(k)-3(k).

1308

XI.d.(ii)

Section of the plan should be amended to provide that an enhanced matching contribution will be 

made to the plan under a formula that at any rate of elective contributions provides an aggregate amount of 

matching contributions at least equal to the aggregate amount of matching contributions that would have been 

provided under the basic matching formula, and the formula provides that the rate of matching contributions 

does not increase as an employee’s rate of elective contributions increases. IRC section 401(k)(13)(D) and 

Regs section 1.401(k)-3(k).

1309

XI.d.(iii)

Section of the plan should be amended to provide that a nonelective contribution will be made to 

each non-highly compensated employee who is eligible under the plan in an amount equal to at least 3 percent 

of the employee’s compensation, whether or not the employee made any elective contributions. IRC section 

401(k)(13)(D) and Regs section 1.401(k)-3(k).

1310

XI.e.

Section of the plan should be amended to provide that the required employer contributions under the 

QACA, either matching or nonelective contributions, must be nonforfeitable after an employee has completed no 

more than 2 years of service. IRC section 401(k)(13)(D)(iii) and Regs. section 1.401(k)-3(k)(3).

1311

XI.f.

Section of the plan should be amended to provide that QACA required matching and nonelective 

contributions, and earnings thereon, are subject to the same distribution restrictions as elective contributions. 

IRC section 401(k)(13)(D)(iii).

1312

XI.g.

Section of the plan should be amended to provide that the plan year is 12 months long (unless it is 

the first plan year of a newly established plan). If a CODA is added to an existing plan, the plan should be 

amended to provide that the CODA (and the addition of matching contributions, if applicable) is effective not 

later than 3 months prior to the end of the plan year. Regs. section 1.401(k)-3(e).

1313

XI.h.

Section of the plan should be amended to provide that compensation used for determining the 

required employer contributions under the QACA, either matching or nonelective contributions, is “safe harbor 

compensation” as defined under Regs section 1.401(k)-3(b)(2), and the same definition of compensation will be 

used for plan years beginning on or after January 1, 2010, for purposes of determining default contributions. 

Regs. section 1.401(k)-3(b), (c), (j)(1), (k)(2).

This form is provided as an example only and should not be 

completed or returned to the Internal Revenue Service
Page 7 For applications submitted to conform to the 2020 RA List

Form 9417 (Rev. 6-2021) Catalog Number 14163U publish.no.irs.gov Department of the Treasury - Internal Revenue Service

1314

XI.i.

Under a QACA, the employer must distribute a notice to each eligible employee that comprehensively describes 

the auto-enrollment feature, the employee’s right to elect a different amount (or no amount) and how default 

contributions will be invested in the absence of an investment directive from the employee, the types of QACA 

required employer contributions that will be made, the plan to which they will be made, the type and amount of 

compensation that may be deferred, how to make elections and the period for making elections, and withdrawal 

and vesting provisions. In addition, the notice must be provided sufficiently early so that the employee has a 

reasonable period of time after receipt to make his or her own election and, if the plan so provides, to make 

investment choices. Default contributions must commence with the pay date for the second pay period that 

begins after the notice is provided or, if earlier, the first pay date that occurs 30 or more days after the notice is 

provided, assuming the employee has no affirmative election in effect. If applicable, the plan should be 

amended to provide for a supplemental notice to be given if a plan changes from a current year Actual Deferral 

Percentage (ADP) (or Actual Contribution Percentage (ACP)) testing method to the QACA nonelective 

contribution method, or if a plan reduces or suspends QACA contributions and changes to the current year ADP 

(and ACP) testing method. Section of the plan should be amended accordingly. IRC section 

401(k)(13)(E) and Regs. section 1.401(k)-3(d), (f), (g) and (k)(4).

1320

XII.a.

Section of the plan should be amended to specify the employees who are covered under the EACA 

and the plan document must state whether an employee who makes an affirmative election remains covered 

under the EACA. The employees who must be subject to the automatic enrollment provisions under an EACA 

are only those employees who are specified in the plan as being covered employees under the EACA. Regs. 

section 1.414(w)-1(e)(3).

1321

XII.b.

The default elective contribution under an EACA must be a uniform percentage of compensation. However, the 

percentage can vary to accommodate certain statutory limits or according to the number of years or portions of 

years since the employee was first covered by the EACA. All automatic contribution arrangements that are 

intended to be EACAs within a plan (or within the disaggregated plan under Regs. section 1.410(b)-7, in the 

case of a plan subject to section 410(b)) are aggregated. Section of the plan should be amended 

accordingly. IRC section 414(w)(3)(B) and Regs. section 1.414(w)-1(b)(2).

1322

XII.c.

Each covered employee must be given a written notice of the employee's rights and obligations under the 

arrangement within a reasonable period before each plan year. The notice must accurately describe the default 

percentage under the plan, the employee’s ability to elect a different amount or no amount, how contributions 

will be invested in the absence of an investment direction from the employee, and, if applicable, the employee’s 

right to make a permissible withdrawal and the procedures for making such a withdrawal. The timing 

requirement is deemed satisfied if the notice is provided at the time specified in Regs. section 1.401(k)-3(d)(3). 

However, the notice must afford the employee a reasonable period of time after receipt of the notice to make his 

or her own election regarding elective contributions and to choose investments. Section of the plan 

should be amended accordingly. IRC section 414(w)(4) and Regs. section 1.414(w)-1(b)(3).

1323

XII.d.

A covered employee’s election to withdraw default elective contributions must be made no later than 90 days 

after the date of the first default elective contributions under the EACA. A plan may specify an earlier deadline, 

but not earlier than 30 days. The effective date of the election cannot be later than the pay date for the second 

pay period beginning after the election or, if earlier, the first pay date that occurs at least 30 days after the 

election. Section of the plan should be amended accordingly. IRC section 414(w)(2)(B) and Regs. 

section 1.414(w)-1(c)(2).

1324

XII.e.

Section of the plan should be amended to provide that the amount of the permissible withdrawal is 

equal to the amount of default contributions made through the effective date of the employee’s withdrawal 

election adjusted for allocable gains and losses to the date of distribution. If default elective contributions are not 

separately accounted for under the plan, allocable gains and losses are determined under rules similar to those 

provided in Regs. section 1.401(k)-2(b)(2)(iv) for the distribution of excess contributions. IRC section 414(w)(2) 

and Regs. section 1.414(w)-1(c)(3).

1325

XII.f.

Section of the plan should be amended to provide that the fee for a permissible withdrawal is no 

higher than would apply to any other cash distribution. Regs. section 1.414(w)-1(c)(3)(ii).

1326

X.j.

Please explain why amendments (other than those necessary to conform plan provisions to the decision in U.S.

v. Windsor, 570 U.S.12 (2013) and the guidance in Rev. Rul. 2013-17 and Notice 2014-19 were made to the 

This form is provided as an example only and should not be 

plan’s safe harbor feature during the plan year).

completed or returned to the Internal Revenue Service