SPHR Human Resources

Answer - A - An actual deferral percentage test is required annually by the Employee Retirement Income Security Act.

Key Takeaway: The Employee Retirement Income Security Act (shortened to ERISA) requires an actual deferral percentage test each year to check that employees who are considered to be highly compensated do not receive greater 401(k) benefits than other employees. If ERISA determines that HCEs do receive greater 401(k) benefits, the employer must make corrective measures or they will lose the tax benefits of their 401(k) plan.