What is a requirement of the ACP safe harbor?

The requirement that the plan must satisfy the Actual Deferral Percentage (ADP) test is indeed a key feature of a 401(k) plan using the ACP (Average Contribution Percentage) safe harbor. The ACP safe harbor is designed to help plans ensure compliance with nondiscrimination tests by providing a simplified method for determining whether a plan is discriminating in favor of highly compensated employees.

Under this safe harbor provision, the 401(k) plan must meet specific employee contribution requirements outlined in the Internal Revenue Code. This means that the contributions made by highly compensated employees cannot exceed a certain percentage over the contributions made by non-highly compensated employees. Meeting these requirements helps the plan avoid potential penalties for noncompliance and ensures fairness in benefits distribution within the plan.

Other aspects of a safe harbor plan may include features like automatic enrollment or matching contributions, but the primary requirement pertaining to the ACP safe harbor directly relates to satisfying the ADP requirements. This emphasizes the balance that must be maintained between different employee contributions to keep the plan compliant and equitable.