Excess deferrals over the 401(a)(30) limit are included in the participant's ADR if he or she is classified as what?

The classification of a participant as a Highly Compensated Employee (HCE) is significant when it comes to the treatment of excess deferrals over the 401(a)(30) limit in relation to the allocation of the Actual Deferral Ratio (ADR). HCEs are subject to specific testing and regulatory rules, particularly concerning contributions to 401(k) plans, including limits on deferrals.

When an individual is classified as an HCE, their deferrals and overall compensation levels are closely monitored to ensure compliance with nondiscrimination tests required by the Internal Revenue Service (IRS). If the participant exceeds the deferral limits, these excess deferrals must be included in their ADR calculation. This is essential to maintain the balance between contributions made by higher-compensated employees and those made by non-highly compensated employees, thereby promoting equitable participation in the plan.

In contrast, the other classifications, such as Non-Highly Compensated Employees (NHCE), Employer Sponsored Employees (ESE), or Temporary Workers (TW), do not carry the same implications for excess deferrals when it comes to ADR calculations. NHCEs typically have different contribution limits and are not as heavily scrutinized regarding contribution ratios, while ESEs and TWs may also fall