What adjustment is the maximum HCE ADP if the NHCE ADP is more than 8%?

When determining the maximum Highly Compensated Employee (HCE) Actual Deferral Percentage (ADP) in relation to the Non-Highly Compensated Employee (NHCE) ADP, one must consider certain regulatory thresholds established by IRS guidelines. If the NHCE ADP exceeds 8%, the rules dictate that the maximum allowable HCE ADP can be determined by applying a multiplier of 1.25 to the NHCE ADP. This reflects the intention of testing compliance with nondiscrimination requirements, ensuring that retirement plans do not disproportionately favor highly compensated employees.

In this scenario, if the NHCE ADP is, for example, 9%, the maximum HCE ADP would be calculated as 9% multiplied by 1.25, yielding an allowable maximum of approximately 11.25%. This translates into maintaining a balance that upholds fairness between HCEs and NHCEs in the contributions made to the 401(k) plan.

The other potential answers deviate from this regulatory guidance, making them incorrect in this context. Thus, understanding the specific rules surrounding NHCE and HCE contribution ratios is crucial for compliance in retirement plan administration.