What is a QNEC?

A QNEC (Qualified Non-Elective Employer Contribution) is an employer deductible retirement expense (100% vested immediately) often used as an option to satisfy testing requirements in a 401(k) Plan. If an employer chooses to make a QNEC contribution to satisfy an ADP test failure, it must be deposited prior to the entity’s tax filing for a prior-year deduction or prior to 12/31 for a current year deduction. An account would be set up for these individuals (if they don’t already have one) and, when the contribution is made, it would be coded as a QNEC contribution. QNEC calculations are performed by a TPA based on many factors that will not necessarily be the same in future years.