Are 403(b) retirement plans required to undergo ADP testing?

The answer indicates that 403(b) retirement plans do not require Actual Deferral Percentage (ADP) testing. This is accurate because 403(b) plans, which are primarily designed for certain tax-exempt organizations, such as public schools and charitable organizations, are not subject to the same testing requirements as 401(k) plans.

ADP testing is a regulatory measure implemented to ensure that retirement plans do not disproportionately favor highly compensated employees over non-highly compensated employees. However, 403(b) plans generally have different non-discrimination rules that allow them to avoid ADP testing altogether. Instead, they are subject to other compliance standards, including basic contribution limits and provisions that prevent discriminatory practices.

Understanding the distinctions between different types of retirement plans helps clarify why 403(b) plans are exempt from ADP testing, making this answer accurate. It also highlights the unique regulatory environment governing different retirement plans based on their specific purposes and the populations they serve.