What is commonly referred to as the anti-abuse rule?

The anti-abuse rule specifically refers to measures implemented to prevent the manipulation of testing results, particularly concerning the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests in retirement plans such as 401(k)s. This rule ensures that plan sponsors do not alter testing methods or structure their contributions in a way that unfairly inflates the ADP or ACP results. By maintaining strict adherence to these testing criteria, the rule protects the integrity of the plan and ensures equitable treatment among all employees, especially non-highly compensated employees.

The focus of the anti-abuse rule is on maintaining fairness and compliance with regulatory standards designed to prevent discrimination in favor of highly compensated employees, thus ensuring that the plans serve their intended purpose to promote widespread employee retirement savings.