What to Do If Your Plan Fails Testing

When testing results show up in January or February, it’s normal for employers to feel a little anxious — especially if the plan didn’t pass ADP or ACP testing. But here’s the truth: testing failures happen all the time, and they’re almost always fixable.

A failed test isn’t a sign that anything is “wrong” with your business or your team. It simply means the plan needs a small adjustment to stay in balance.

Here’s what to expect, what the results actually mean, and the next steps to get everything back on track.

1. A failed test is more common than you think

Testing failures don’t mean anyone made a mistake. They often happen when:

• participation is lower in certain groups

• executives or HCEs contribute more than others

• your company has grown or changed

• match formulas no longer fit how people use the plan

Most plans fail testing at some point — especially as teams change. It’s a normal part of 401(k) administration.

2. There are two common types of corrections

When a plan fails testing, the IRS gives employers two main ways to fix it:

A. Refunds to certain employees

Some highly compensated employees (HCEs) may receive a small refund of contributions.

B. Additional employer contributions

Sometimes the plan can stay in balance by giving a small contribution to non-HCEs.

Your TPA will let you know which correction fits your plan and your goals.

3. The correction deadline matters

Corrections typically need to be made by March 15 for calendar-year plans.
(Other plan years follow the same timing — 2.5 months after the plan year ends.)

Fixing issues early keeps the plan compliant and avoids penalties.

4. You can prevent issues going forward

The good news is that testing problems often reveal opportunities to strengthen the plan. A few small adjustments can make a big difference:

• improving communication around enrollment

• using auto-enroll or auto-escalation

• adjusting match formulas

• reviewing eligibility rules

• moving to a Safe Harbor design for more predictability

You don’t need to overhaul the whole plan — just tune it so it works better for your team.

5. You’re not expected to solve this alone

Most employers look at testing results and think, “Did we do something wrong?”

But testing is simply a snapshot — one moment in time that helps guide your next steps.

If your plan fails testing this year, we’ll walk through the results together, explain your options, and help you choose the path that makes the most sense for your business and your team.

A failed test isn’t a setback — it’s information

It’s a chance to understand how employees are using the plan, what’s working, and where small changes can make next year easier.

If you have questions about your results or want to explore options that prevent future issues, we’re here to help you every step of the way.