What is the primary purpose of the 414(s) test?

The primary purpose of the 414(s) test is to assess nondiscrimination in compensation within retirement plans, particularly 401(k) plans. This test ensures that employee benefits do not disproportionately favor highly compensated employees compared to non-highly compensated employees, thus promoting equitable treatment across different employee income levels.

By applying the 414(s) testing requirements, employers can demonstrate compliance with Internal Revenue Code provisions that aim to prevent discrimination in favor of higher-paid employees. This is crucial for maintaining the qualified status of a plan, which allows it to receive favorable tax treatment.

In contrast, the other options relate to different aspects of employee management or taxation, such as determining salary levels, evaluating employee performance, or calculating tax obligations, but do not specifically address the primary focus of the 414(s) test, which is centered on ensuring nondiscrimination in benefits distribution among employees.