Can QNECs be treated as elective deferrals in the ADP test?

Qualified Non-Elective Contributions (QNECs) can indeed be treated as elective deferrals for the purposes of the Actual Deferral Percentage (ADP) test. This allows plan sponsors to use QNECs to help meet compliance requirements of the ADP test, which measures the percentage of salary that highly compensated employees (HCEs) defer into their 401(k) plans compared to non-highly compensated employees (NHCEs).

When a QNEC is properly structured, it is treated as an elective contribution and counts towards the employee's deferral percentage. This can significantly assist employers in passing the ADP test by raising the deferral rate for NHCEs, helping to balance the plan’s participation by ensuring that lower-paid employees are not disproportionately excluded from the benefits of the plan.

In this context, this treatment is beneficial as it provides flexibility for employers looking to ensure plan compliance while also enhancing the retirement savings of their employees. This ability to treat QNECs as elective deferrals is a key aspect of plan administration that aids in the overall equitable treatment of employees under retirement plans.