What defines an employee's ADR?

An employee's Actual Deferral Ratio (ADR) is defined as the elective deferral amount divided by their 414(s) compensation. This specific measurement focuses on the total compensation that is eligible for deferral under the plan, taking into account various compensation elements that the Internal Revenue Code recognizes for qualified plans.

The reference to 414(s) compensation is crucial because it encompasses a broader scope of what constitutes eligible compensation for contribution purposes, which may include salary, bonuses, and other forms of compensation that can be deferred into a 401(k) plan. Understanding this definition is essential for accurately calculating an employee's ADR, which is significant for compliance with nondiscrimination testing requirements.

The other options may reference various forms of compensation or configurations, but they do not align with the specific definition provided by the IRS for 414(s) compensation, underscoring why the chosen answer is the most accurate in depicting how ADR is defined in the context of 401(k) administration.