Is it true that a SIMPLE 401(k) plan is deemed to pass the ADP test?

A SIMPLE 401(k) plan is indeed deemed to pass the Actual Deferral Percentage (ADP) test, which is important for ensuring that the contributions of highly compensated employees are not disproportionately higher than those of non-highly compensated employees. The unique structure of a SIMPLE 401(k) plan allows employees to make salary deferrals, and it automatically qualifies for safe harbor provisions set by the IRS.

These provisions exempt SIMPLE 401(k) plans from the ADP test requirements, simplifying regulatory compliance. This means that as long as the employer contributions are made according to the plan's requirements, the plan is inherently designed to maintain equitable contribution levels between different employee classifications. This exemption is designed to encourage employer participation in providing retirement options to employees, particularly for smaller businesses that might be challenged by the compliance demands of more traditional 401(k) plans.

Thus, saying that a SIMPLE 401(k) plan is deemed to pass the ADP test is correct, as it inherently avoids the complexities associated with this testing altogether.