Are the corrective contributions and distributions required?

If a 401(k) plan fails nondiscrimination testing, employers must take corrective action. This may include issuing refunds to Highly Compensated Employees (HCE) or making additional employer contributions to non-highly compensated employees (NHCE), known as Qualified Non-Elective Contributions (QNECs) or Qualified Matching Contributions (QMACs). Additionally, true-up contributions may be required to ensure employees receive the full employer match they were eligible for, but did not receive due to payroll timing or contribution fluctuations. These corrections are necessary to maintain the plan’s compliance and tax-advantaged status.