ADP (Actual Deferral Percentage)
The average employee deferral rate for a group. Used to test that HCEs aren't deferring disproportionately more than NHCEs.
Annual Additions (§415 Limit)
The total of employer contributions, employee deferrals, and forfeitures allocated to a participant. Limited to $70,000 in 2025.
Catch-Up Contribution
Additional deferrals allowed for participants age 50+. The limit is $7,500 in 2025 (not counted toward the $23,500 regular limit).
Compensation Limit (§401(a)(17))
Maximum compensation that can be considered for plan purposes. $350,000 in 2025.
Cross-Testing
A method that allows different contribution rates for different employee groups, tested using EBAR (age-adjusted rates).
Defined Benefit (DB) Plan
A pension plan promising a specific benefit at retirement. Cash Balance plans are a type of DB plan.
EBAR (Equivalent Benefit Accrual Rate)
An age-adjusted contribution rate used in cross-testing. Converts current contributions to equivalent annual retirement benefits.
Gateway Minimum
The minimum NHCE allocation rate required for cross-testing. Typically 1/3 of the highest HCE rate or 5%, whichever is less.
HCE (Highly Compensated Employee)
An employee who owns >5% of the company OR earned more than $155,000 in the prior year (2025 threshold). Subject to special testing rules.
Key Employee
For top-heavy testing: >5% owner, >1% owner earning >$150,000, or officer earning >$220,000 (2025). Different from HCE.
NHCE (Non-Highly Compensated Employee)
Any employee who is not an HCE. Generally rank-and-file employees.
Profit Sharing
Employer contributions that can vary year-to-year. Can be allocated pro-rata, integrated, or cross-tested.
QNEC (Qualified Nonelective Contribution)
Employer contribution given regardless of employee deferrals. The 3% Safe Harbor contribution is a QNEC. Always 100% vested.
Safe Harbor
Plan design that automatically satisfies ADP/ACP testing by providing minimum employer contributions (3% QNEC or qualifying match).
SECURE 2.0 Super Catch-Up
Enhanced catch-up for ages 60-63: $11,250 for 401(k) or $5,250 for SIMPLE in 2025. Higher than standard catch-up.
Top-Heavy
A plan where Key Employees have >60% of total account balances. Triggers minimum contribution requirements for non-key employees.