True or False: If elective deferrals are shifted to the ACP test, the ADP test must pass both pre-shift and post-shift.

The statement is true. When elective deferrals are shifted to the Actual Contribution Percentage (ACP) test, it is required that the Actual Deferral Percentage (ADP) test must be passed both before and after the shifting of those amounts. This is part of ensuring compliance for 401(k) plans regarding nondiscrimination testing.

The ADP test assesses whether the employee deferrals from highly compensated employees (HCEs) do not disproportionately exceed those of non-highly compensated employees (NHCEs). When amounts are shifted from the ADP test to the ACP test to improve the testing result, it is essential that the ADP test still meets compliance standards for both pre-shift and post-shift periods. This ensures that the integrity of the testing process maintains fairness and equality among all participants in the retirement plan, regardless of their earnings level.

In situations where elective deferrals are involved, the integrity of the tests must be strictly upheld, thereby necessitating the dual compliance check.