Excess deferrals over the 401(a)(30) limit are excluded from the participant's ADR if they are which type of employee?

The correct answer indicates that excess deferrals over the 401(a)(30) limit are excluded from the participant's Annual Deferral Reduction (ADR) for non-highly compensated employees (NHCE).

This provision recognizes that NHCEs typically have lower compensation compared to highly compensated employees (HCEs) and thus may not have the same impact on the overall fairness and compliance of the plan's design. The exclusion of excess deferrals for NHCEs allows them a greater opportunity to accumulate savings without triggering additional complexities in compliance testing.

Understanding the treatment of excess deferrals is crucial because it affects the deferral limits that apply to participants and can influence the overall distribution of benefits within a retirement plan. Provisions like this one help to assure that lower-compensated employees still gain benefit from these plans without being penalized by limits that are primarily aimed at higher-compensated individuals.

This distinction plays a vital role in maintaining the non-discriminatory nature of 401(k) plans and ensuring they remain compliant with ERISA regulations, thus promoting broader retirement savings across the workforce.