When an HCE participates in multiple plans with related employers, what is required regarding their elective deferrals?

When a Highly Compensated Employee (HCE) participates in multiple 401(k) plans sponsored by related employers, their elective deferrals must be aggregated to determine the Average Deferral Rate (ADR). This requirement ensures that the overall contribution levels of HCEs across all plans are taken into account when performing nondiscrimination testing, which is crucial for maintaining compliance with the Internal Revenue Code provisions. By aggregating the deferrals, administrators can accurately assess whether the plans provide fair opportunities for all employees, particularly non-HCEs, to contribute to the plan. This aggregation can affect whether the plans pass the necessary nondiscrimination tests, such as the Actual Deferral Percentage (ADP) test, which evaluates whether HCEs are disproportionately benefiting from the plan compared to non-HCEs. Thus, the requirement to aggregate elective deferrals is central to ensuring compliance with testing requirements and promoting equitable participation in retirement plans.