What is the main purpose of making a QNEC?

A Qualified Non-Elective Contribution (QNEC) is primarily designed to increase average deferrals for Non-Highly Compensated Employees (NHCEs). This type of contribution is especially relevant in addressing certain compliance testing requirements for 401(k) plans, such as the Actual Deferral Percentage (ADP) test. By providing a QNEC to NHCEs, employers can help balance the plan's contribution levels between Highly Compensated Employees (HCEs) and NHCEs, thereby improving the overall health of the plan and ensuring it meets the non-discrimination requirements set forth by the IRS.

QNECs are typically provided without requiring any deferral from the employee, making them an effective tool to boost participation and savings among NHCEs, thereby facilitating more equitable treatment within the plan. This can ultimately lead to increased retirement security for all employees, while also helping the plan maintain compliance with regulations.

Options related to adjusting employee eligibility, lowering HCE contributions, or enhancing retirement planning guidance do not capture the specific intent and impact of a QNEC as effectively as the contribution aimed at increasing deferrals for NHCEs.