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Qualified nonelective contribution (QNEC)
If a plan fails the actual deferral percentage (ADP) test or actual contribution percentage (ACP) test, the sponsor may choose to correct the failure by making a contribution to an employee’s account, which is known as a qualified nonelective contribution (QNEC). QNECs are calculated as a percentage of an employee’s pay. ADP and ACP tests are nondiscrimination tests that help ensure a company’s 401(k) plan doesn’t unfairly benefit highly-compensated employees. QNECs may also be used to correct other operational errors made by the plan.
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