Business Services Industry
Sec. 401(k) nondiscrimination safe harbors.(taxation)
Tax Adviser, The, May, 1999 by Lavenberg, Robert A.
New design-based safe harbor methods for meeting the nondiscrimination rules for cash or deferred arrangements (CODAs) became effective Jan. 1, 1999 for calendar-year plans. These new methods, enacted by the Small Business Job Protection Act of 1996 (SBJPA), allow many organizations to adopt or expand their use of CODAs.
Prior to the SBJPA, employers maintaining a Sec. 401(k) plan had to calculate the average deferral percentage (ADP) of the highly compensated employees (HCEs) and the non-highly compensated employees (non-HCEs) for the plan year. Tests were then performed to determine whether the HCEs' deferrals were nondiscriminatory. If they were, corrections were required (e.g., return of excess amounts to the HCEs or additional employer contributions to...
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