What is one of the avenues that can be taken if the ratio percentage test fails?

The average benefits test serves as an alternative compliance method when the ratio percentage test fails in the context of a qualified retirement plan like a 401(k). This test evaluates whether the benefits provided to highly compensated employees are proportionate with those provided to non-highly compensated employees.

If the ratio percentage test results indicate that the plan does not meet the required thresholds for nondiscrimination, employers can opt to utilize the average benefits test to demonstrate that the plan's benefit structure is indeed equitable. The focus of this test is on the average contribution rates or benefits of lower-paid employees compared to those of the higher-paid employees, thus helping to ensure compliance with ERISA nondiscrimination rules. This method allows employers to avoid penalties and amend plan structures accordingly to meet regulatory requirements.

In contrast, employer contribution tests, net asset tests, and eligibility criteria reviews serve different purposes and may not address the specific issue of nondiscrimination related to the ratio percentage test directly.