Actual Deferred Percentage (ADP)

What is Actual Deferred Percentage (ADP)?

Employees defer the percentage of income under a 401(k) retirement plan as the actual deferred percentage (ADP).

Why Actual Deferred Percentage (ADP) Matters

The ADP of an employer aids in ensuring that employee 401(k) benefits adhere to ERISA and IRS regulations that prohibit discrimination against lower-paid employees or in favor of higher-earning employees.

Traditional 401(k) plans, according to the IRS, must “ensure that the contributions made by and for rank-and-file employees [NHCEs] are equal to contributions made for owners and managers [HCEs].”