## (USA) Working With Nondiscrimination Testing

This chapter provides an overview of nondiscrimination testing (NDT), including a sample average deferral percentage (ADP) calculation, and discusses how to:

- Define and identify key employees.

- Define key employee tests.

- Process NDT.

- Review test results.

### Understanding NDT

Many companies offer 401(k) plans for contributions into retirement investment plans. Frequently, the company provides a partial, or matching, contribution for the amount that the employee contributes to the plan up to a specified amount. The government defers the taxes due for the amounts contributed to and earned by 401(k) plans until the employee withdraws money from the plan.

The tax advantages that are available to a qualified plan are contingent upon the plan covering an adequate cross-section of the sponsoring employer's employees. To determine whether a plan meets this requirement, you can perform a number of objective tests that measure the extent to which a plan benefits employees.

This table describes terms and concepts that apply to NDT:

Term or Concept | Description
Highly-compensated employee (HCE) (also called key employee) | An employee who meets at least one of the following criteria: Owned a specified percentage of the company at any time during the determination year or the look-back year. Received compensation in excess of a specified amount during the determination year or look-back year and, at the election of the employer, is a member of the top-paid group during the determination year or the look-back year.
Nonhighly-compensated employee (NHCE) (also called nonkey employee) | An employee who does not meet at least one of the following criteria: Owned a specified percentage of the company at any time during the determination year or the look-back year. Received compensation in excess of a specified amount during the determination year or look-back year and, at the election of the employer, is a member of the top-paid group during the determination year or the look-back year.
Average deferral percentage (ADP) | The average amount of money deferred into a plan and allocated to the employees' accounts. This amount is expressed as a percentage of the employees' total compensation.
Average contribution percentage (ACP) | The average amount of employer-matching funds and employee post-tax contributions to a plan. This amount is expressed as a percentage of the employees' total compensation.
Determination year | The 12-month period from January 1 through December 31 of the current testing year.
Look-back year | The 12-month period from January 1 through December 31 of the year prior to the testing year.
Testing year | The plan year used to test the ADP and ACP for HCEs.
Current year testing method | The method of testing in which the plan uses data from the testing year in determining the ADP and ACP for NHCEs.
Prior year testing method | The method of testing in which the plan uses data from the previous year in determining the ADP and ACP for NHCEs.

You use NDTs to compare the treatment of HCE to the treatment of employees who are not highly compensated. NDTs ensure that HCE do not take substantially greater advantage of the tax savings of a 401(k) plan than lower-paid employees. When you perform the compliance tests, you include all eligible employees, regardless of whether they actually contribute to the plan.

In NDTs for 401(k) plans, the first of two major components that determine plan status is the ADP, which is calculated per employee, per annum. The ADP test applies to employee 401(k) contributions only. A total ADP exists for both the HCE and NHCE groups. The ADP of the NHCE group determines the maximum ADP of the HCE group. In general, the HCE group can have a slightly higher ADP than the NHCE group, but if it is too high, the plan is discriminatory and excess deferrals must be returned to the HCE group.

The second major component is the ACP, which is calculated per employee, per annum. The ACP test applies to non-401(k) contributions, the employer matching contributions, and employee after-tax contributions. A total ACP exists for both the HCE and NHCE groups. You apply the ACP test in the same manner as the ADP test to measure the amounts that the employer contributed and allocated to employees' accounts.

Before January 1, 1997, the contribution limits for HCEs were based on the amount deferred or contributed by NHCEs during the current plan year. Beginning with the 1997 plan year, employers were given an additional testing option that allows them to use previous year percentages for the NHCEs. The contribution percentages for HCEs are still based on payroll data from the current plan year in this testing method. The prior year testing method enables employers to determine HCE average contribution limitations well in advance of the year-end, and to take corrective measures that reduce the chances of a failed test.

An employer may choose to switch from the prior year testing method to the current year testing method at any time, but some limitations apply when the employer switches from the current year to the prior year testing method. The plan document specifies the testing method used each year.

A plan might be disqualified if it is discriminatory. When a plan is disqualified, these events occur:

- Some or all of the employer's income tax deduction for contributions made to the plan are disallowed.

- The employee's income and tax deferrals are lost.

- The interest earned on employer and employee contributions loses its tax deferral.

In addition to the 401(k)-related tests, you can review the NDT - 415 Nondiscrimination Testing report (R083676). This report identifies all employees, on a pay-period by pay-period basis, who have withheld more on a pretax basis than the government allows.

The NDT - Definition and Setup program (P083600) groups all of the tasks associated with NDT and provides access to these tasks through a centralized point of entry. This work area also provides a visual representation of current and historical test scenarios, the results of the tests, and the various stages of a current testing process. You can link to the JD Edwards EnterpriseOne Payroll system to review and verify the test results that relate to employee- and employer-related plan contributions and employee compensation.

This implementation guide is not intended as a replacement for the legal requirements of NDT. A federal statute called the Employee Retirement Income Security Act (ERISA) governs NDT. You should be familiar with the regulations and mandates provided through ERISA in administering NDT. The U.S. Department of Labor's Pension and Welfare Benefits Administration, together with the Internal Revenue Service (IRS), provides statutory regulation for ERISA.

Example: Sample ADP Calculation

To perform the ADP test, you calculate a salary deferral percentage for every eligible employee. In the following example for a group of NHCEs, the numerator represents the amount of salary deferred by the employee. The denominator represents the employee's salary before the 401(k) deferral. This table illustrates this example:

Employee | Deferral Amount | Salary Before Deferral | Percentage
Employee #1 | 1,000.00 USD | 25,000 USD | 4
Employee #2 | 2,500 USD | 34,000 USD | 7.35
Employee #3 | 0 USD | 22,000 USD | 0
Employee #4 | 1,750 USD | 28,000 USD | 6.25
Employee #5 | 1,500 USD | 32,500 USD | 4.62

Employee #3 does not participate in the plan, but is included in the calculation with a zero amount because the employee meets minimum eligibility requirements to participate in the retirement plan. The average ADP for this group of employees is 4.44 percent.

After you calculate the averages for both the HCEs and NHCEs, you compare the percentages for both groups. In general, the average of the HCEs cannot exceed that of the NHCEs by more than 2 percent.

You perform the ACP test in the same manner, where the numerator represents the amount of matching employer contributions and after-tax contributions to the employee's account.

In the event of a failed test, the employer must make corrections by one of these methods:

- The employer makes a contribution to the plan to raise the NHCE amount to obtain acceptable test results.

- The employer returns part of the HCE's contributions to lower the HCE average to obtain acceptable test results.

### Defining and Identifying Key Employees

This section provide an overview of key employees and discusses how to:

- Run the NDT - Determine Eligibility by Hours program (R08364).

- Set processing options for the NDT - Determine Eligibility by Hours program (R08364).

#### Understanding Key Employees

To ensure that companies comply with governmental regulations, you must run NDTs to identify key, or HCE. An HCE is a person who meets at least one of the following criteria:

- Owned a specified percentage of the company at any time during the determination year or the look-back year.

- Received compensation in excess of a specified amount during the determination year or look-back year and, at the election of the employer, is a member of the top-paid group during the determination year or look-back year.

You review and audit employee information and payroll history information in the process of determining key employees. For example, you can review information in the Employee Master Information table (F060116) to determine whether the employee is an officer.

Maintaining Employee Information for NDT

You can access the Employee Master Information table (F060116) through the Eligibility/NDT row exit to update employee information that is relevant to NDT, such as owner or officer status (K001 and K002). The NDT system does not provide an automated process of identifying determination or look-back year owners and officers.

Verifying Employee Payroll History for NDT

You can access employee payroll history from the NDT - Definition and Setup program (P083600) to review payroll information that identifies the HCE in the organization.

See Working with Payroll History.

#### Running the NDT - Determine Eligibility by Hours Program (R08364)

Select Government Reporting menu (G05BG), Nondiscrimination Reporting. On Non-Discrimination Testing Process, select Employee Eligibility Batch Process from the Define and Identify Key Employees section.

To review the number of hours that an employee works during a specific time period, run the NDT - Determine Eligibility by Hours report (R08364). You must run this report when a company establishes a specific number of hours that an employee must work before the employee can participate in the 401(k) plan. You can first run the report in proof mode to review a list of employees whose records will be updated. Then, you can run the report in final mode to update those employee records in the Employee Master Information table (F060116). When you run the report in final mode, you update category code K008 in the Employee Master Information table (F060116).

Important! Do not run this report during payroll processing. The program calculates values based on payroll history. If you run this report during payroll processing, the results will be inaccurate.

#### Setting Processing Options for the NDT - Determine Eligibility by Hours Program (R08364)

Processing options enable you to specify the processing for programs and reports.

Defaults

Use these processing options to specify the values that the system uses during the Employee Eligibility Batch Process.

1. Minimum Number of Hours | Specify the minimum number of hours an employee must work to be eligible for the 401(k) plan.
2. Pay Type Table | Specify the name of the pay type table used to retrieve pay types. Pay type tables are defined in the NDT - Pay Types Tables program (P083931).
3. From Date | Specify the From date (MM/DD/YY) for the plan year to be considered. If left blank, the system uses the calendar dates for the current year.
4. Through Date | Specify the Thru date (MM/DD/YY) for the plan year to be considered. If left blank, the system uses the calendar dates for the current year.
5. Proof or Final Mode | Specify whether to run the process in Proof or Final mode. Values are: Blank or 0: Proof mode (No update to Employee Master) 1: Final mode (Update to Employee Master)

### Defining Key Employee Tests

This section provides an overview of key employee tests, lists prerequisites, and discusses how to:

- Enter key test criteria.

- Review historical test data.

- Run the NDT - Determine Key Employees Report (R08365).

- Set processing options for the NDT - Determine Key Employees program (R08365).

#### Understanding Key Employee Tests

Governmental regulations prohibit HCE from taking unfair advantage of 401(k) contributions. To determine which employees are highly-compensated, you must first set up the criteria that the system uses to differentiate between HCE and NHCE.

You might need to run multiple tests to determine which employees are highly-compensated. Versions of the most common tests are included in the JD Edwards EnterpriseOne demonstration data so that they are already set up for you. This table describes sample test versions:

Test | Description
Top 20 percent - Look Back Year | This test identifies the top 20 percent compensated employees in an organization during the previous year.
HCE - Look Back Year | This test identifies last year's highest-paid employees who met or exceeded the government-defined compensation amount.
Top 20 percent - Determination Year | This test identifies the top 20 percent compensated employees in an organization for the current year.
Top 100 - Determination Year | This test identifies this year's 100 highest-paid employees.
Top 10 - Determination Year | This test identifies this year's 10 highest-paid employees.
HCE - Determination Year | This test identifies this year's highest-paid employees who meet or exceed the government-defined compensation amount.
ADP/ACP Test Calculations | This test accumulates the results of all previous tests for the current year to determine the final HCEs.

In defining a key employee test, you set the selection criteria for the Employee Master Information table (F060116) and Employee Transaction History Summary table (F06146). By defining a key employee test, you specify the criteria that identify HCEs.

Entering Key Test Criteria

Governmental regulations prohibit HCE from taking unfair advantage of 401(k) contributions. To determine HCE, you must first set up the criteria that the system uses to differentiate between HCE and NHCE.

You define the employees, pay type, deduction, benefit, and accruals (PDBAs), and companies that will be used as the criteria for NDT. This program uses these tables:

- Employee Master Information (F060116).

- Employee Transaction History Summary (F06146).

- User-Defined Code (UDC) Types (F0004).

- UDCs (F0005).

- NDT - Company Selection Criteria (F08367).

- DBA Pay Type Tables (F083931).

- NDT - Criteria Heading (F08365).

- NDT - Key Employee Detail (F08366).

Reviewing Historical Test Data

You can review the results of previous NDTs. You might want to compare the results of a particular test from year to year, or compare the results of various tests within the same year. Government regulations allow some flexibility in how the NDTs are performed. By reviewing the results of various tests, you can select the testing method that works best for the organization.

#### Prerequisites

Before you complete the tasks in this section, you must:

- Verify that you have set up:

  - Test name codes for NDT.

  - Compensation/contribution PDBA codes (UDC 08/TU - DBA Pay Type Tables).

  - Test category codes (UDC 08/EC - NDT Codes).

  - Plan control group.

- Specify that the button that follows the Select Pre-Tax Deduction Type or Fringe Taxable Benefit Type section is set to 401(k) for the employee deferrals PDBAs and employer contribution PDBAs in the PDBA Setup/ U.S. Leg/Reg program (P059116).

#### Forms Used to Enter Key Test Criteria

Form Name | FormID | Navigation | Usage
Define Test Criteria | W08365A | Government Reporting (G05BG), Nondiscrimination Reporting On the Non-Discrimination Testing Process form, select Enter Key Test Criteria from the Define Key Employee Tests (Companies, PDBAs and Criteria) section. On the Work With Test form, click Add. | Enter key test criteria.
Define Test Criteria | W08365A | On the Work With Test form, complete the Test Name and Test Year fields and click Find. The system completes the detail area with historical data for the specified NDT, test year, or both. Select a test, and then select Define Criteria from the Row menu. | Review historical test data.

#### Entering Key Test Criteria

Access the Define Test Criteria form.

1. Complete these required fields:

   - Test Name

   - Test Year/Basis

   - Compensation Basis

   - Number of Years Tested

   - Total Compensation Table

   - Employee/Employer Contribution Table

2. Complete the And/Or field.

   When you select And, the system requires that an employee pass both criteria records that you enter. When you select Or, the system requires that an employee pass only one criteria record. The system value is And.

3. Complete these fields in the combinations that you require for the organization:

   - Compensation Limit

   - Top Pd

   - M T

   - Description

   - NDT Code

   - NDT Code Description

   - NDT Code Value

   - NDT Value Description

     For example, you can enter criteria for Compensation Limit and Top Pd based on rank, or Compensation Limit and Top Pd based on percentage. Alternatively, you can enter criteria for Compensation Limit or NDT Code. You cannot, however, combine Compensation Limit and NDT Code.

4. To specify the companies that you want included in this test, select Company Selection from the Form menu.

5. On the Company Selection Overrides form, complete the Co field and click OK.

   Leave this field blank to include all companies in the test.

6. On the Define Test Criteria form, select Pay Type Table from the Form menu to define the compensation or contribution tables and associate pay types with them.

7. On the Work With PDBA Table for NDT form, click Add.

8. On the PDBA Tables for NDT form, complete these fields and click OK:

   - Pay Type Table

   - From Trans

   - Thru Trans

9. On the Work With PDBA Table for NDT form, click Close.

10. On the Define Test Criteria form, click OK.

    Test Name | Enter the UDC 08/TN that identifies a test used to segregate key and non-key employees for the purposes of benefit NDT.
    Test Year/Basis | Enter the calendar year for which the rules of an NDT are in effect.
    Compensation Basis | Enter a 1to calculate employee compensation based on the calendar year.
    Number of Years Tested | Enter a 1 to indicate a test for the current calendar years.
    Total Compensation Table | Enter the table that determines an employee's total annual compensation. All PDBAs that make up the employee's compensation should be included in this table setup. This table is defined in the DBA Pay Type Tables program (P083931).
    Employee/Employer Contribution Table | Determines employer and employee 401(k) contributions. All DBAs that make up this contribution should be included in the table setup. This table is defined in the DBA Pay Type Tables program (P083931).
    And/Or | Enter a code to designate whether the test parameters or criteria are based on an AND condition or an OR condition.
    Compensation Limit | Enter the minimum amount of annual pay that indicates that an employee is a key employee for the purposes of a benefit NDT. That is, any employee who earns this amount or more is considered a key employee or HCE. The types of pay which contribute to an employee's compensation can be restricted using the compensation pay type table (see data item PTCL). This field can be used in conjunction with the Top Pd field (data item TPP) to specify that an employee must earn a specified amount and be in the top paid group in order to be a key employee.
    Top Pd (top paid) | Enter a number that indicates the top paid group of employees who are considered key employees or HCE for a benefit NDT. The number can refer either to a top paid percentage or a top paid number of employees, depending on the code, if any, in the MT (Method for Top Group) field (data item TPM). For example, a value of 20 in this field and % (percent) in the MT field indicates that employees who are among the top paid 20 percent of all employees tested are considered key employees for the test. However, if the MT field is blank, the top paid 20 employees tested are considered key employees. This field can be used in conjunction with the Amount field (data item CMPL) to specify that an employee must earn a specified amount and be in the top paid group in order to be a key employee.
    M T (method) | Enter a qualifier for the Top Paid field (data item TPP) that indicates whether the number is a percentage or a flat amount. A value of % (percent) in this field indicates that top paid refers to a percentage group of employees. A value of blank indicates that top paid refers to employees by their rank (data item ERNK). Examples: Top paid 20 using percent method means the top paid 20 percent of employees tested. Top paid 15 using rank method (blank) means the top paid 15 employees tested.
    NDT Code (nondiscrimination testing code) | Enter the NDTcode (K001–K010) you select to use when setting up a test specification. You specify category codes that have been updated in the process of running a previous test.
    NDT Code Description (nondiscrimination testing code description) | Enter a user-defined name or remark.
    NDT Code Value (nondiscrimination testing code value) | Enter the value of the NDT code in the employee master. For example, values for the Owner/Officer field (K001) are defined in UDC 06/OO. This value enables the description to be printed for the field value. The values for the remaining NDT codes (K002–K010) are either defined as values for the data item as Y for yes or _ for blank.
    NDT Value Description (nondiscrimination testing value description) | Enter a user-defined name or remark.
    Co (company) | Enter the company number where the employee records generally reside.
    Pay Type Table | Enter the name of the table you defined in UDC 08/TU.
    From Trans | Enter the number and description of the PDBA that you want the system to use to calculate the corresponding PDBA. This number is the beginning number in the range that is the basis of the calculation.
    Thru Trans | Enter the number and description of the PDBA that you want the system to use to calculate the corresponding PDBA. This number is the ending number in the range that is the basis of the calculation.

#### Review Historical Test Data

Access the Define Test Criteria form.

#### Running the NDT - Determine Key Employees Program (R08365)

Select Government Reporting menu (G05BG), Nondiscrimination Reporting. On Non-Discrimination Testing Process, select Create Key Employee Test from the Define Key Employee Tests (Companies, PDBAs and Criteria) section.

The tests that you use to determine key employees or HCE are versions of the NDT - Determine Key Employees batch program (R08365) that use the key criteria that you defined earlier. The test versions define which test you are using and whether it is for the determination year or look-back year.

You might need to run multiple tests to determine which employees are highly-compensated.

#### Setting Processing Options for the NDT - Determine Key Employees Program (R08365)

Processing options enable you to specify the processing for programs and reports.

Compensation Information

These processing options specify how the system handles compensation amount information.

1. Employee Compensation Amount | Specify whether to print the employee compensation amount on the report. Values are: Blank: Print the employee compensation amount (default) 1: Do not print the employee compensation amount
2. Compensation Amount Accrued | Specify the maximum eligibility compensation amount accrued.

Category Code Information

These processing options specify the information that is updated on the Employee Master Information table (F060116) regarding NDT.

1. Employee Master NDT Code | Specify the NDT category code from UDC 08/EC that the system updates in this batch test process (K001–K010).
2. New Employee NDT Code | Specify the new Employee NDT code value.
3. Clear Employee Master NDT Code before Update | Enter a UDC 00/NY to specify whether to clear the employee master NDT code before update. Values are: 0: Do not clear. 1: Clear.

Track NDT History

This processing option specifies whether the system tracks NDT history.

1. Would you like to track Nondiscrimination Test History | Specify whether to track NDT history. Values are: Blank or 0: No 1: Yes

### Processing NDT

This section provides an overview of NDT processing, lists prerequisites, and discusses how to:

- Process an NDT using the current year testing method.

- Process an NDT using the prior year testing method.

#### Understanding NDT Processing

After you have defined the NDTs, you group and process the tests and review the test results.

The Key Employee Test Association, Selection & Processing program (P083601P) groups the NDTs that you have defined and provides access to these tests through a centralized point of entry that functions like a workbench. You can use this workbench to run tests in the order that best suits the needs of the organization. You can review and analyze reports that include the results of the tests. If the results do not meet the needs, you can change the order of the tests or perform additional tests.

The workbench also provides a visual representation of current and historical test scenarios, the results of the tests, and the various stages of a current testing process.

#### Prerequisites

Before you complete the tasks in this section, you must:

- Verify that you have defined the various NDTs that you will be using.

  See Defining Key Employee Tests.

- To successfully complete the prior year testing method you must first run the current year testing method for ADP/ACP.

  For example, to test for plan year 2008 run the current year testing method for 2007, ADP/ACP (if you have not already done so), run the current year testing method for 2008 ADP/ACP, then run the prior year testing method.

#### Forms Used to Process NDTs

Form Name | FormID | Navigation | Usage
Work with Test Association and Processing | W083601PA | Government Reporting (G05BG), Nondiscrimination Reporting On the Non-Discrimination Testing Process form, select Key Employee Test Association, Selection & Processing from the Associate, Process and Review Tests section. | Process an NDT using the current year testing method.
NDT - Prior Year Testing Method Selection Criteria | W083675B | On the Non-Discrimination Testing Process form, select Prior Year Testing Method Test Selection from the Associate, Process and Review Tests section. On the Work with Prior Year Testing Method Test form, click Add. | Process an NDT using the prior year testing method.

#### Processing an NDT Using the Current Year Testing Method

Access the Work with Test Association and Processing form.

1. Complete these fields and then click Find:

   - Test Name

   - Test Year

   - Plan Identification

     The system displays the tests that you have previously defined in the Non Discrimination Tests Defined section (left side of the form). This side of the form is for review only; you cannot complete any functions from this side. You must first transfer selected tests to the Select & Sequence Tests Associated to the Plan section (right side of the form).

     The middle section of the form displays a vertical row of buttons that perform these functions:

   - Add a Test

   - Remove a Test

   - Delete (All) Selected Tests

   - Enter Key Test Criteria

   - Test Results Review

   - Submit the Selected Report

   - Submit All Plan Reports

   - Create a Version

   - Submitted Jobs

2. To set up the test format, select the test on the left side of the form, and then click the Add a Test button.

   You can select one test. The system prompts you to select one of the versions that you set up earlier.

3. To remove a test from the testing sequence, select the test on the right side of the form and click the Remove a Test button.

   The system returns the test to the left side of the form and deletes all test results from the system.

4. To remove all tests from the testing sequence, click the Delete (All) Selected Tests button.

   Important! If you click the Delete (All) Selected Tests button, you will delete all of the test results from the system.

5. To process one or more tests, complete one of these methods:

   - To process a single test, select the test on the right side of the form and click the Submit the Selected Report button.

   - To process all of the tests that you have added to the right side of the form, click the Submit All Plan Reports button.

     The system processes the tests in the sequence in which they appear.

6. On the Report Output Destination form, select one of these options and click OK:

   - On Screen

   - To Printer

   - Export to CSV

7. To change or complete setup procedures, select a test from the right side of the form and use the Enter Key Test Criteria and Create a Version buttons.

   Note. When you set up NDT, you entered key test criteria and created versions.

   See Defining Key Employee Tests, Running the NDT - Determine Key Employees Program (R08365).

8. To review test results, select the test and click the Test Results Review button.

9. On the Work with Employee Test Results form, review the information in the detail area, and then click Close.

10. To review the processing status of the submitted tests, click the Submitted Jobs button.

11. On the Work With Servers form, select the batch program and Click Select.

12. On the Submitted Job Search form, review the value in the Status field.

13. When the job is complete, select the record in the detail area and then select View PDF from the Row menu to review the results.

#### Processing an NDT Using the Prior Year Testing Method

Access the NDT - Prior Year Testing Method Selection Criteria form.

HCE Test Name (highly compensated employee test name) | Enter a UDC 08/TN that specifies the test name from which to retrieve data for HCEs when using the prior year testing method for NDT.
HCE Test Year (highly compensated employee test year) | Enter the calendar year from which to retrieve data for HCEs when using the prior year testing method for NDT.
NHCE ADP Test Name (non-highly compensated employees ADP test name) | Enter a UDC 08/TN that specifies the test name from which to retrieve the ADP and related data for NHCEs when using the prior year testing method for NDT.
NHCE ADP Test Year (non-highly compensated employees ADP test year) | Enter the calendar year from which to retrieve the actual deferral percentage (ADP) and related data for NHCEs when using the prior year testing method for NDT.
NHCE ACP Test Name (non-highly compensated employees ACP test name) | Enter a UDC 08/TN that specifies the name of the test from which to retrieve the actual contribution percentage (ACP) and related data for NHCEs when you are using the prior year testing method for NDT.
NHCE ACP Test Year (non-highly compensated employees ACP test year) | Enter the calendar year from which to retrieve the actual contribution percentage (ACP) and related data for NHCEs when using the prior year testing method for NDT.

### Reviewing Test Results

This section provides an overview of NDT results, lists prerequisites, and discusses how to:

- Review test results.

- Run the 401(k) Discrimination Results program (R083675).

- Set processing options for the 401(k) Discrimination Results program (R083675).

- Run the NDT - 415 Nondiscrimination Testing Report (R083676).

- Set processing options for the NDT - 415 Nondiscrimination Testing Report (R083676).

#### Understanding NDT Results

Review the results of each NDT to identify compliance issues. Identifying compliance issues in a timely manner enables the employer to make corrections that might cause a failed test result at the conclusion of the plan year, including disqualification of the plan.

The NDT - Individual Test Results program (P08365R) is an online version of the reports generated by the NDT - Determine Key Employees program (R08365) and the 401(k) Discrimination Results program (R083675).

Running the 401(k) Discrimination Results Program (R083675)

Select Government Reporting menu (G05BG), Nondiscrimination Reporting. On Non-Discrimination Testing Process, select Run Pass/Fail Test Report from the Final Pass/Fail Test Processing and Review section.

After you run the tests to determine key employees and the test that accumulates the results of all previous tests for the current year (ADP/ACP), you run the 401(k) Discrimination Results report (R083675) to determine compliance with governmental regulations for qualified plans.

The 401(k) Discrimination Results report (R083675) performs two tests. In the first test, the ADP and ACP of the NHCE is multiplied by the multiplier that you entered in the first processing option. If the ADP and ACP of the HCE is less than the result, the organization passes the test, and the report indicates that the HCE are not overly contributing to a 401(k) plan.

If the first test fails, the system initiates the second test. This test has two parts. To meet the government requirements for NDT, the organization must pass both parts of the second test.

The first part of the second test multiplies the ADP and ACP of the HCE by the multiplier that you entered in the second processing option. If the ADP and ACP of the HCE is less than the result, the report results indicate that the HCE are not overly contributing to a 401(k) plan.

The second part of the second test adds the ADP and ACP of the nonhighly-compensated group to the factor that you entered in the third processing option. If the ADP and ACP of the HCE is less than the result, the report results indicate that the HCE are not overly contributing to a 401(k) plan.

Note. Data selection for this Final Pass/Fail test must be based on the ADP/ACP test for the test year when using the Current Year Testing Method. However, when running this test using the Prior Year Testing Method, data selection should be based on the test name specified in the prior year testing method program (P083675). For example, a test name may be PRIOR05.

Running the NDT - 415 Nondiscrimination Testing Report (R083676)

Governmental regulations specify the maximum percentage that an employee can contribute to deferred plans. To identify employees who contribute more to their deferred plan than the government allows, run the NDT - 415 Nondiscrimination Testing report (R083676). You can print or view the report and review the results each pay period to ensure that all employees remain in compliance. You should run this report after pre-payroll processing is complete.

You run this report when you process a payroll cycle. Coordinate with the payroll department to ensure that the report is set up to run as part of the payroll cycle.

See Setting Up Pay Cycle Reports, Reviewing Payroll Cycle Reports.

#### Prerequisites

Before you complete the tasks in this section, you must:

- Verify that the 415 Testing Code field under the Year End Info section of the PDBA Setup/ U.S. Leg/Reg program (P059116) is set to either 45A for the employee deferrals PDBAs and 45E for employer contribution and employee after-tax contributions.

- Verify that the NDT - 415 Nondiscrimination Testing Report (R083676) is set up in UDC 07/RJ.

See Setting Up Pay Cycle Reports.

#### Form Used to Review NDT Test Results

Form Name | FormID | Navigation | Usage
Work with Employee Test Results | W08365RB | Government Reporting (G05BG), Nondiscrimination Reporting On the Non-Discrimination Testing Process form, select Test Results Review Report from the Final Pass/Fail Test Processing and Review section. On the Work With Employee Test Results form, complete the Test Name and Test Year fields, and then click Find. | Review test results.

#### Reviewing Test Results

Access the Work with Employee Test Results form.

#### Running the 401(k) Discrimination Results Program (R083675)

Select Government Reporting (G05BG), Nondiscrimination Reporting. On Non-Discrimination Testing Process, select Run Pass/Fail Test Report.

#### Setting Processing Options for the 401(k) Discrimination Results Program (R083675)

Processing options enable you to specify the processing for programs and reports.

Default

These processing options specify the values for the tests that the report performs. Processing options 1, 2, and 3 are the current percentages used for final ADP/ACP testing. By federal regulation, the ADP of HCEs cannot exceed the greater of 1.25 times the ADP of the NHCEs, or the lesser of both:

- 2 plus the percentage points of the ADP of the NHCEs.

- 2 times the ADP of the NHCEs.

The same rules apply when testing the ACP. The system calculates both the ADP and ACP tests together. You complete the processing options as described for the current percentages:

1. Processing option #1 - 1.25

2. Processing options #2 - 2

3. Processing option #3 - 2

   1. Multiplier - First Test | Specify the multiplier related to the first test.
   2. Multiplier - Second Test | Specify the multiplier related to the second test.
   3. Factor - Second Test | Specify the factor related to the second test.
   4. Print Employee Number and Name | Specify whether to print the employee name and number on the report. Values are: Blank: Print. (default) 1: Do not print.

#### Running the NDT - 415 Nondiscrimination Testing Report (R083676)

You run this report when you process a payroll cycle. Coordinate with the payroll department to ensure that the report is set up to run as part of the payroll cycle. Verify that the NDT - 415 Nondiscrimination Testing Report (R083676) is set up in UDC 07/RJ.

Note. Running this report outside of the payroll cycle may yield inaccurate results.

See Setting Up Pay Cycle Reports.

#### Setting Processing Options for the NDT - 415 Nondiscrimination Testing Report (R083676)

Processing options enable you to specify the processing for programs and reports.

Defaults

This processing option specifies the year to use when selecting history records for the NDT - 415 Nondiscrimination Testing report (R083676).

1. Enter the year (CCYY) to use when selecting history records from F06146. | Specify the year (CCYY) to use when selecting records from the Employee Transaction History Summary table (F06146). If you leave this processing option blank, the system date is used.