If the actual deferral percentage (ADP) for nonhighly compensated employees is 9%, what is the maximum deferral percentage for highly compensated employees?

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The maximum deferral percentage for highly compensated employees is determined based on the Actual Deferral Percentage (ADP) of nonhighly compensated employees. According to IRS regulations, highly compensated employees (HCEs) can generally defer a maximum of two percentage points more than the ADP of nonhighly compensated employees (NHCEs).

In this case, since the ADP for nonhighly compensated employees is 9%, you add 2% to that figure. Therefore, the maximum deferral percentage for highly compensated employees would be 9% + 2% = 11%. However, if the plan uses a calculation method that allows for more than just the flat increase, you might be able to adopt a more complex calculation to determine their maximum deferral, which could guide you toward 11.25%.

To effectively maximize contributions while adhering to IRS guidelines, it's key to recognize that there are certain thresholds. In this context, the 11.25% represents a balance that retains compliance without exceeding permissible limits dictated by the ADP ratios provided. Thus, this option considers regulatory limits and optimizes deferral without breaching compliance with retirement plan rules.