ADP/ACP Testing in Plain English
Every year, 401(k) plans go through something called ADP and ACP testing. For many employers, these tests can feel a little mysterious — and sometimes stressful — especially when results start showing up in January and February.
But the truth is, these tests are simply guardrails. They’re designed to make sure your plan treats everyone fairly and stays healthy over the long run.
Here’s a simple, clear explanation of what ADP and ACP testing are, why they matter, and what they really mean for your business.
ADP Testing: How employees use the plan
ADP stands for Actual Deferral Percentage.
It looks at how much your highly compensated employees (HCEs) defer compared to everyone else.
The idea is:
If owners or higher-paid employees put a lot into the plan, the rest of the team should be participating too. Otherwise the plan looks unbalanced.
ADP testing answers the question:
“Are people at all pay levels using the 401(k) in a way that feels fair?”
ACP Testing: How matching works
ACP stands for Actual Contribution Percentage.
It focuses on matching and after-tax contributions.
This test asks:
“Are company match dollars going mostly to higher-paid employees, or spread more evenly?”
Like ADP, it’s about balance — making sure the plan supports your whole team.
Why these tests matter
Plans that don’t meet these fairness rules may need adjustments, such as:
issuing refunds to certain employees
giving additional contributions to the team
reviewing participation
tuning up plan design for next year
It’s not fun, but it’s fixable — and it’s a normal part of plan administration for many businesses.
What causes testing issues?
Most testing problems come from one of these:
low participation among non-HCEs
uneven match formulas
new or growing companies
high participation from executives but not the broader team
unusual payroll or deferral patterns
None of these are “bad” — they simply mean the plan might need a little tune-up.
The good news: You have options
If your plan has failed testing before — or you’re worried about this year — there are clear, simple ways to improve results:
strengthen participation
adjust match formulas
add auto-enroll or auto-escalation
explore Safe Harbor designs
clean up eligibility or communication gaps
You don’t have to solve it alone. These fixes are what we help with every day.
Understanding the tests is the first step
ADP and ACP testing isn’t meant to be confusing.
It’s simply a check to make sure the plan works well for everyone.
If you ever feel unsure about what your results mean — or what to do next — we’re here to make it simple, walk you through your options, and help you build a plan that feels balanced, fair, and predictable.