Actual Deferral Percentage (ADP)

Categories: Retirement and Pension,

A factor used in the testing of 401(k) salary deferral plans to determine whether they exceed the discrimination guidelines set forth in the tax code. 401(k) plans that allow the more highly compensated employees to contribute a higher proportion of their income, including the employer contribution, than the percentage contributed by and on behalf of lower paid employees are deemed to be discriminatory and will be disqualified if not corrected.