Certified Plan Sponsor Professional (CPSP) Practice Exam

The Actual Contribution Percentage Test (ACP) compares which of the following?

1. Employer and employee contributions

2. Matching contributions and salary deferrals

3. After-tax employee contributions of NHCEs to HCEs

4. Matching contributions and After-tax employee contributions

The correct answer is: Matching contributions and After-tax employee contributions

The Actual Contribution Percentage (ACP) Test is a component of nondiscrimination testing that focuses on ensuring that the contributions made to a retirement plan do not disproportionately favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). The purpose of the ACP test is to preserve the tax-advantaged benefits of retirement accounts for all employees. The correct answer highlights that the test compares matching contributions and after-tax employee contributions. This means that it assesses the contributions made by the employer in terms of matching and the additional amounts employees contribute on an after-tax basis. By evaluating these contributions, the ACP test ensures that the contributions from HCEs and NHCEs are in compliance with regulations designed to prevent discrimination in favor of higher-paid employees. In context, the other options do not reflect the true nature of the ACP test. The first option does not specify the types of contributions being compared, while the second option incorrectly suggests that salary deferrals are part of the comparison, which they are not in the ACP context. Lastly, the third option mixes after-tax contributions of NHCEs and HCEs incorrectly, as the ACP test specifically assesses contribution levels rather than the types of contributions made by different employee classifications.