Is the decision on including QNECs in the ADP or ACP test an administrative discretion?

Including Qualified Non-Elective Contributions (QNECs) in the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) tests is indeed a matter of administrative discretion based on the specific design and goals of the 401(k) plan.

The primary purpose of the ADP and ACP tests is to ensure that the contributions made by highly compensated employees (HCEs) do not disproportionately exceed the contributions made by non-highly compensated employees (NHCEs). When a plan administrator decides to include QNECs in these tests, it can potentially enhance the plan's ability to pass compliance tests.

This decision allows for flexibility in how a plan is managed, as including QNECs might help balance out the contribution levels between HCEs and NHCEs, ultimately providing an advantage in achieving compliance with regulatory requirements. On the other hand, if a plan administrator opts not to include QNECs, it reflects a choice aligned with the overall strategy and participant demographics of that specific plan.

Because the inclusion of QNECs is not mandated but rather depends on the plan's strategies and the administrative choices made by the plan administrator, it is accurately classified as a decision within administrative discretion.