What is nondiscrimination testing and why do we have to worry about it?
The most basic rule that enables a retirement plan to be a “qualified” retirement plan and thus “shelter” its funds from taxation and give the employer that maintains the plan a tax deduction for contributions to it is that the plan be for the primary benefit of the participants and that it not be a discriminatory plan. Whether it is discriminatory is defined by the Internal Revenue Code and regulations and other rulings issued by the IRS. A number of specific tests are applied to plans to see to it that they are not discriminatory. There are also so-called “safe-harbors” that, if utilized, enable a plan to pass some or all tests automatically.
