These procedures ensure that a company’s retirement savings plan does not disproportionately favor highly compensated employees over other workers. These evaluations assess contributions and benefits to verify equitable participation across all employee levels. For instance, a plan failing to provide adequate matching contributions or opportunities for participation to lower-paid employees might be deemed discriminatory.
The significance of these evaluations lies in protecting the tax-qualified status of a retirement plan. Maintaining compliance prevents penalties and ensures all employees, not just those highly compensated, receive the intended retirement benefits. This framework evolved from legislation designed to broaden retirement savings access and prevent preferential treatment within employer-sponsored plans.
