What is the maximum HCE ADP when NHCE ADP is less than 2%?

The determination of the maximum Highly Compensated Employee (HCE) Actual Deferral Percentage (ADP) when the Non-Highly Compensated Employee (NHCE) ADP is less than 2% follows specific regulatory guidelines set forth by the IRS.

In this scenario, when the NHCE ADP is below the 2% threshold, the maximum ADP for HCEs is permitted to be double that of the NHCE ADP. Therefore, if you take the NHCE ADP and multiply it by 2, that will give you the maximum allowable ADP for HCEs under this condition.

This approach is aimed at ensuring compliance with nondiscrimination requirements, which ensure that qualified plans do not disproportionately favor highly compensated employees over non-highly compensated employees. The formula effectively allows a balance within the plan without violating IRS regulations.