Actual Deferral Percentage Law and Legal Definition
Actual Deferral Percentage (ADP) is an annual test in a 401(k) plan that compares the average salary deferrals of highly compensated employees (HCEs) to that of nonhighly compensated employees (NHCEs). Each employee’s deferral percentage is the percentage of compensation that has been deferred to the 401(k) plan. The deferral percentages of the HCEs and NHCEs are then averaged to determine the ADP of each group. To pass the test, the ADP of the HCE group may not exceed the ADP for the NHCE group by 1.25 percent or the lesser of 2 percentage points and two times the NHCE ADP.