Which statement best describes the role of plan design features in plan funding and nondiscrimination planning?

Which statement best describes the role of plan design features in plan funding and nondiscrimination planning?

• A. Design features have no impact on nondiscrimination testing.
• B. Plan features such as contribution limits, eligibility rules, and safe harbors influence nondiscrimination testing outcomes.
• C. Plan design only affects administrative complexity.
• D. All plans automatically pass nondiscrimination tests regardless of features.

Answer: (B)

Plan design features determine who participates, how much they can contribute, and whether safe harbor rules are used. Nondiscrimination testing compares deferrals and contributions between highly compensated and non-highly compensated employees, so the way a plan is designed directly changes who is in the test and how large their contributions are. If you broaden NHCE participation, provide meaningful employer contributions, or adopt safe harbor provisions, the test outcomes improve and the plan is more likely to pass. Conversely, restrictive eligibility, low NHCE contributions, or designs that favor HCEs can lead to unfavorable test results. This is why design choices matter in funding and nondiscrimination planning. Options that claim there’s no impact, only administrative complexity, or that all plans pass are incorrect.

Plan design features determine who participates, how much they can contribute, and whether safe harbor rules are used. Nondiscrimination testing compares deferrals and contributions between highly compensated and non-highly compensated employees, so the way a plan is designed directly changes who is in the test and how large their contributions are. If you broaden NHCE participation, provide meaningful employer contributions, or adopt safe harbor provisions, the test outcomes improve and the plan is more likely to pass. Conversely, restrictive eligibility, low NHCE contributions, or designs that favor HCEs can lead to unfavorable test results. This is why design choices matter in funding and nondiscrimination planning. Options that claim there’s no impact, only administrative complexity, or that all plans pass are incorrect.