If an employee makes a one-time, irrevocable election not to participate in a 401(k) plan, how does it affect their inclusion in the ADP test?

When an employee makes a one-time, irrevocable election not to participate in a 401(k) plan, they are automatically excluded from the Actual Deferral Percentage (ADP) test. The ADP test is designed to ensure that highly compensated employees do not disproportionately benefit from the plan compared to non-highly compensated employees.

An employee who has elected not to participate is viewed as not having any deferrals, which means their contributions are effectively zero. Therefore, they do not impact the results of the ADP test calculations, as the test focuses on those who are actively contributing to the plan. This exclusion helps maintain compliance with non-discrimination rules, which are crucial for preserving the qualified status of the retirement plan.

In summary, the correct answer reflects the treatment of non-participating employees in the context of the ADP test, making it clear that their decision not to participate has a direct effect on their exclusion from the test calculations.