[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-1-en-105":3,"doc-seo-280722-105":53,"doc-detail-280722-en":127},{"code":4,"msg":5,"data":6},0,"success",[7,14,19,24,29,34,39,44,49],{"id":8,"doc_module":9,"doc_module_name":10,"category_name":11,"show_sort_weight":12,"slug":13},11,1,"Template","Presentations",90,"presentations",{"id":15,"doc_module":9,"doc_module_name":10,"category_name":16,"show_sort_weight":17,"slug":18},12,"Resumes",80,"resumes",{"id":20,"doc_module":9,"doc_module_name":10,"category_name":21,"show_sort_weight":22,"slug":23},14,"Invoices",70,"invoices",{"id":25,"doc_module":9,"doc_module_name":10,"category_name":26,"show_sort_weight":27,"slug":28},15,"Posters",60,"posters",{"id":30,"doc_module":9,"doc_module_name":10,"category_name":31,"show_sort_weight":32,"slug":33},16,"Social Media",50,"social-media",{"id":35,"doc_module":9,"doc_module_name":10,"category_name":36,"show_sort_weight":37,"slug":38},17,"Forms",40,"forms",{"id":40,"doc_module":9,"doc_module_name":10,"category_name":41,"show_sort_weight":42,"slug":43},18,"Letters",30,"letters",{"id":45,"doc_module":9,"doc_module_name":10,"category_name":46,"show_sort_weight":47,"slug":48},21,"Paper Templates",5,"papers-templates",{"id":50,"doc_module":9,"doc_module_name":10,"category_name":51,"show_sort_weight":4,"slug":52},158,"General","general-158",{"code":4,"msg":54,"data":55},"ok",{"site_id":56,"language":57,"slug":58,"title":59,"keywords":60,"description":61,"schema_data":62,"social_meta":120,"head_meta":122,"extra_data":124,"updated_unix":126},105,"en","corrective-distributions-overview","Corrective Distributions - Overview","","Corrective distributions arise when IRS compliance testing for qualified 401(k) plans identifies excess contributions, requiring refunds or adjustments to ensure benefits are distributed equitably. The overview explains how Non-Discrimination testing components—ADP, ACP, limit testing, and ineligible contribution rules—can trigger corrective action. It outlines key deadlines to avoid excise penalties, taxability timing, and how clients, Empower, and participants process requests, calculate earnings, receive checks, letters of explanation, and updated 1099-R reporting.",{"@graph":63,"@context":119},[64,80,102],{"@type":65,"itemListElement":66},"BreadcrumbList",[67,71,74,77],{"item":68,"name":69,"@type":70,"position":9},"https://docshare.wps.com","Home","ListItem",{"item":72,"name":10,"@type":70,"position":73},"https://docshare.wps.com/template/",2,{"item":75,"name":41,"@type":70,"position":76},"https://docshare.wps.com/template/letters/",3,{"item":78,"name":59,"@type":70,"position":79},"https://docshare.wps.com/template/corrective-distributions-overview/280722/",4,{"url":78,"name":59,"@type":81,"image":82,"author":87,"headline":59,"publisher":90,"fileFormat":93,"inLanguage":57,"description":61,"dateModified":94,"datePublished":95,"encodingFormat":93,"isAccessibleForFree":96,"interactionStatistic":97},"DigitalDocument",{"url":83,"@type":84,"width":85,"height":86},"https://docshare.wps.com/thumbnails/corrective-distributions-overview/280722.png","ImageObject",442,249,{"name":88,"@type":89},"Aran","Person",{"url":68,"name":91,"@type":92},"DocShare","Organization","application/pdf","2026-10-18","2026-09-16",true,{"@type":98,"interactionType":99,"userInteractionCount":101},"InteractionCounter",{"@type":100},"ViewAction",8,{"@type":103,"mainEntity":104},"FAQPage",[105,111,115],{"name":106,"@type":107,"acceptedAnswer":108},"What triggers the need for corrective distributions in a 401(k) plan?","Question",{"text":109,"@type":110},"Corrective distributions are needed when annual IRS Non-Discrimination testing shows excess contributions, meaning HCE benefits exceed NHCE benefits beyond allowed thresholds or when other test components fail. Excess contributions then require corrective action.","Answer",{"name":112,"@type":107,"acceptedAnswer":113},"How do the ADP and ACP tests relate to corrective distributions?",{"text":114,"@type":110},"The ADP test compares average contribution rates of HCEs versus NHCEs against a prescribed limit. The ACP test performs a similar comparison but includes employer matching and after-tax contributions when calculating contribution rates.",{"name":116,"@type":107,"acceptedAnswer":117},"What deadlines apply to complete testing and corrections?",{"text":118,"@type":110},"Non-Discrimination tests are performed annually based on the plan year. To avoid a 10% excise penalty, testing and corrections (including corrective distributions) must be completed no later than 2 1/2 months after plan year end, with certain EACA/QACA plans using a 6-month ADP/ACP deadline.","https://schema.org",{"og:url":78,"og:type":121,"og:title":59,"og:site_name":91,"og:description":61},"article",{"robots":123,"canonical":78},"index,follow",{"doc_id":125,"site_id":56},280722,1789555704,{"code":4,"msg":5,"data":128},{"doc_id":125,"user_id":129,"nickname":88,"user_avatar":130,"doc_module":9,"category_id":40,"category_name":41,"doc_title":59,"doc_description":61,"doc_content":131,"file_id":132,"file_url":133,"file_type":134,"file_size":135,"view_count":101,"is_deleted":4,"is_public":9,"is_downloadable":9,"audit_status":9,"page_count":73,"language":136,"language_code":57,"site_id":56,"html_lang":57,"table_of_contents":137,"faqs":138,"seo_title":139,"seo_description":61,"update_tm":126,"read_time":9},137455076865,"https://ap-avatar.wpscdn.com/davatar_29158cc5080c5b710cf443261637dec0","Corrective distributions  \nOV ERV I EW  \nThe Internal Revenue Service (IRS) requires qualified 401(k) retirement plans to perform compliance testing (also referred to as Non-Discrimination testing) on an annual basis to determine whether all participants are benefiting equitably from the plan. Plan benefits of highly compensated employees (HCEs) and key employees are compared to plan benefits of non-highly compensated employees (NHCEs) . As a result of this testing, excess contributions may be discovered resulting in the need for corrective distributions.  \nNOTE: Plans administered by a Third Party Administrator (TPA) direct Empower to process corrective distributions by completing Empower’s Corrective Distribution Request Form, authorized by plan signer or authorized TPA.  \nThe four most common components of Non-Discrimination testing that may result in corrective distributions are outlined below.  \nActual Deferral Percentage (ADP) Test  \nThe ADP test determines if the average contribution rates of HCEs exceeds the average contribution rates of NHCEs by more than a prescribed amount.  \nActual Contribution Percentage (ACP) Test  \nThe ACP test is conducted in the same manner as the ADP test but includes employer matching contributions and after-tax contributions in calculating contribution rates.  \nLimit testing  \n• Ensures IRS contribution limits are enforced.  \n• Catch-up contributions are exempt from certain limitations.  \n• Loan payments and rollover funds are not included in limit testing.  \nIneligible contributions  \n• Employee contributions made to the plan prior to have met eligibility requirements of the plan, such as minimum age and service.  \n• Employee’s contributions and earnings, if any, must be returned to the participant. Any employer money contributed is forfeited.  \nDeadlines and timelines  \n• Non-Discrimination tests are performed annually based on the plan year.  \n• Clients avoid a 10% excise penalty if testing and corrections (including corrective distributions) are completed no later than 2 ½ months after plan year end. Certain plans with Eligible or Qualified Automatic Contribution Arrangements (EACA or QACA) have a 6 month ADP/ACP deadline.  \n• Excess contributions are considered taxable in the year the excess occurred.  \n• Ineligible contributions, including any applicable earnings, returned to the employee are taxable in the year of distribution and reported on a 1099-R sent to the participant in the following year along with a letter of explanation.  \n• NOTE: See Federal 401(k) and 401(a) Provisions for further information.  \nHow it works  \nClient  \nReceives compliance testing results notification via email from Empower:  \n• Reviews testing results on the Compliance To Do list within the Plan Service Center (PSC) .  \n• Overrides participant’s default vested percentage and default tax withholding, if applicable.  \n• Electronically submits the corrective distribution request for processing.  \n• NOTE: If the plan is administered by a TPA, the TPA completes the Empower Corrective Distribution Form and submits to Empower, at the Client’s direction.  \nEmpower  \nReceives and processes the Empower Corrective Distribution Form or online submission:  \n• Calculates earnings/losses associated with the amount being distributed as of the day the corrective distributions are processed.  \n• Produces tax forms and reports distributions for the applicable tax year.  \n• Sends distribution checks along with letters of explanation to participants.  \n• NOTE: If a participant has fully distributed or rolled their full balance prior to processing the corrective distribution request, the 1099-R representing the full withdrawal is reduced by the excess amount and a new 1099-R is issued for the excess. A \"Zero Balance Letter\" will be sent to the participant explaining the change.  \nParticipants  \n• Override default tax withholding by electing any percentage for federal and state tax withholding, if preferred.  \n• Receives check","cbCaiimjmK9fcViz","https://ap.wps.com/l/cbCaiimjmK9fcViz","pdf",96043,"English","# Overview\n## Non-Discrimination testing components\n## Deadlines and tax implications\n## How it works (Client, Empower, Participants)","[{\"question\":\"What triggers the need for corrective distributions in a 401(k) plan?\",\"answer\":\"Corrective distributions are needed when annual IRS Non-Discrimination testing shows excess contributions, meaning HCE benefits exceed NHCE benefits beyond allowed thresholds or when other test components fail. Excess contributions then require corrective action.\"},{\"question\":\"How do the ADP and ACP tests relate to corrective distributions?\",\"answer\":\"The ADP test compares average contribution rates of HCEs versus NHCEs against a prescribed limit. The ACP test performs a similar comparison but includes employer matching and after-tax contributions when calculating contribution rates.\"},{\"question\":\"What deadlines apply to complete testing and corrections?\",\"answer\":\"Non-Discrimination tests are performed annually based on the plan year. To avoid a 10% excise penalty, testing and corrections (including corrective distributions) must be completed no later than 2 1/2 months after plan year end, with certain EACA/QACA plans using a 6-month ADP/ACP deadline.\"}]","Corrective Distributions - Overview | PDF"]