Download the 2024 Safe Harbor Guide

Download the 2024 Safe Harbor Guide

Understand new rules for 2024, benefits of Safe Harbor and strategies to minimize Safe Harbor costs.

5 min read

What Are 401(k) QNECs and QMACs? Definitions, and How to Avoid Them

David Ramirez, CFA
April 19, 2024
What Are 401(k) QNECs and QMACs? Definitions, and How to Avoid Them
Table of contents

If a company does not adopt a Safe Harbor 401(k) plan and they have low participation and savings rates, there is a good chance that they may need to make a QNEC or a QMAC. Making a QNEC or QMAC isn't always easy, but it doesn't have to be a headache. This complete guide breaks down everything you need to know about QNECs and QMACs in plain language and step-by-step instructions.

Realizing you need to make a qualified non-elective contribution (QNEC) or qualified matching contribution (QMAC) for your company-sponsored 401(k) plan isn’t a fun moment.

Perhaps you ran the numbers and realized you are almost certainly going to fail your ADP or ACP test? Maybe you’re going over paperwork and noticed a detail that made your stomach drop. Somehow, an employee who was eligible for contribution to your company’s 401(k) wasn’t notified or given the opportunity.

Either way, what you’ve found is a problem.

Luckily, there’s a solution.

Making a QNEC or QMAC can help you solve it (hopefully before any major damage is done). In this post, we’ll go over exactly what QNECs/QMACs are, how they can help (or are necessary), how to go about calculating and making a QNEC/QMAC, and all the important specifics, rules, deadlines, and details you need to know.

To start, let’s address each of these contributions separately.

What is a 401(k) QNEC?

A Qualified Non-Elective Contribution (QNEC) is a way for employers to correct for a failed nondiscrimination test (NDT) or make up for an employee’s lost opportunity to make elective deferrals. Basically, QNECs are contributions made on behalf of the employee – usually a non-highly compensated employee (NHCE) – that are immediately 100% vested.

These contributions are non-elective, which means you must provide the contribution to every employee, even if they did not save into the plan. For testing purposes, they can treated the same as elective deferrals or as an employer contribution, which means they can be used to help correct a failed ADP or ACP test.

What is a 401(k) QMAC?

Qualified Matching Contributions (QMACs) are like QNECs, except rather than being non-elective, they are matching contributions, made as a percentage of the employee’s elective deferral.

They are typically used to help you pass the ACP test — much the same way that QNECs are used to help you pass the ADP test.  A QMAC may also be used to satisfy ADP testing, figuring into the calculation like an employee deferral.

It is important to note that a QNEC or a QMAC contribution can only be used to satisfy the failure of one of the tests, ADP or ACP, not both.  As a result there could be circumstances where additional steps must be taken, or both types of contribution must be made.


Though QMACs are often mentioned in the same breath as QNECs and used jointly, they have some key distinctions. We’ve broken down the major differences in the table below:

Though QMACs are often mentioned in the same breath as QNECs and used jointly, they have some key distinctions. We’ve broken down the major differences in the table below:
## QNECs vs. QMACs
Qualified Non-Elective Contributions Qualified Matching Contributions
Amount based on: % of the employee’s compensation Amount based on: % of the employee’s elective deferral
Generally used to pass ADP nondiscrimination test Generally used to pass the ACP nondiscrimination test, however, may also be used to pass the ADP nondiscrimination test

Understanding QNECs/QMACs

As we stated above, the point of a QNEC or QMAC is to correct for a mistake, so don’t worry too much if you’ve made a mistake. We’ll go over common mistakes, what to do to correct, and important rules for QNECs/QMACs. But let’s jump in before we get ahead of ourselves:

Common mistakes: when do you have to make a QNEC/QMAC?

401(k) plan administration isn’t easy — and with all the moving parts involved, people make mistakes. Some of these common 401(k) administration errors include:

  • Plan sponsors may assume their 401(k) plan doesn’t cover non-standard or part-time employees (when it actually does).
  • During deferral calculations or nondiscrimination tests, plan sponsors may forget to include eligible employees who didn’t make elective deferrals.
  • Plan sponsors may accidentally not permit an employee to make elective deferrals, (often due to administrative turnover or other bureaucratic complications).

These common mistakes may result in failing nondiscrimination testing, or in neglecting to correctly enroll and offer deferrals for an eligible employee.  

If you failed your ADP test (or think you might):

Often, when a company fails their NDTs, QNECs/QMACs are not the only option, or even the most common. Companies most commonly use corrective distributions, deferrals that are refunded to HCEs. However, these can unexpectedly burden your HCEs with extra fully taxable income that year — not a recipe for happy higher-ups. That’s where a QNEC/QMAC comes in.

A QNEC/QMAC is a way for the plan sponsor or employer to correct their 401(k) plan without disrupting their employee’s checkbooks.

If you didn’t give an employee the chance to make elective deferrals (or want to make sure that hasn’t happened):

In this instance, the QNEC/QMAC is intended to compensate the employee for their missed opportunity for deferrals. The plan sponsor makes the corrective payment, rather than the employee having to suffer from the company’s oversight.

Plan Sponsor QNEC/QMAC Costs

A 401(k) QNEC or QMAC isn’t normally the most popular corrective action because, well, they cost the employer. Plan sponsors who choose to use this route as the corrective action have to foot the bill for a failed ACP/ADP test or bureaucratic blip, and that can be a painful cost, particularly when it’s unexpected.

On the bright side: QNECs/QMACs mean employees are kept happy. Highly-compensated employees don’t have to get their deferrals refunded, and any employee who didn’t get the opportunity to defer still gets money in their account (and it’s 100% vested, meaning it’s theirs right off the bat).

How To Calculate the Amount of a QNEC/QMAC:

For a failed ADP or ACP test:

If you failed your ADP or ACP test and decide to make QNEC/QMACs to make the correction,    you’ll need to make QNECs/QMACs up to the point that your plan passes the test. Basically, you have to rebalance the scale. Here’s how to calculate those amounts:

Step #1:

Take a look at your failed ADP or ACP test and compare your NHCE/HCE percentages to the pass/fail requirements laid out in the chart below.

For this example, we’ll focus on the ADP test. Our NHCE ADP was 3.80%, while our HCE ADP was 7.33% – which exceeds the maximum allowed percentage, thereby failing the ADP test.

Step #2:

Calculate the percentage contribution you need to make to NHCEs to bring your plan into balance and help you pass the failed nondiscrimination test.

(HCE ADP % – 2) – NHCE ADP % = Required QNEC

Here’s our example:

(7.33% – 2) – 3.80% = 1.53%

Note: If your NHCE ADP was above 8%, your calculation would look like:

(HCE ADP % / 1.25) – NHCE ADP % = Required QNEC %

Step #3:
Multiply the QNEC percentage you calculated in Step 2 by each of your NHCEs compensations to calculate the total QNEC that has to be made to each employee.

NHCE QNEC Calculation Table
Employee Compensation Deferral QNEC % QNEC Amount
NHCE 1 $50,000 $2,500 1.53% $765
NHCE 2 $42,000 $2,520 1.53% $643
NHCE 3 $39,000 $2,340 1.53% $597
NHCE 4 $39,000 $780 1.53% $597
NHCE 5 $35,000 - 1.53% $536

For this example, our total QNEC would be $3,137, distributed pro rata, or proportionally, to our NHCEs.

If, on the other hand, you are considering a QNEC to compensate for a missed deferral opportunity, your calculation will be different.

Missed Employee Deferrals

If an employee that was eligible and willing to make elective deferrals was unable to do so for whatever reason, you have to make a QNEC/QMAC equal to half the amount they would have deferred as calculated by the ADP of their respective group – whether they’re a HCE or NHCE.

Calculating a QNEC/QMAC in this situation can be done in 2 steps:

Step 1: Calculate the Employee’s Missed Deferral

So in order to calculate the amount of a QNEC/QMAC, you first need to find your employee’s missed deferral. Make sure you know which group (HCE or NHCE) the employee in question belongs to.  

(HCE or NHCE) Actual Deferral Percentage * Employee’s Compensation

= Employee’s Missed Deferral

If, for example, NHCE #2 (compensation: $42,000) was never given the opportunity to contribute to the plan, their missed deferral calculation would be: 3.80% * $42,000 = $1,596

Note: In this calculation, use the group Actual Deferral Percentage and employee compensation for the year in which the employee was excluded from deferrals.

Step 2: Calculate the Actual QNEC/QMAC Amount

From here, the QNEC/QMAC calculation itself is a walk in the park:

Employee’s Missed Deferral / 2 = QNEC amount

In our example, we simply take 50% of the missed deferral amount: $1,596 /  2 = $798

All this might seem daunting, but there are a few ways that you can knock off some of that cost right off the bat if you meet the conditions for a safe harbor corrective method.

Deadline For Making QNECs/QMACs

In most cases, the deadline for making QNECs is the end of the year after the plan year (12 months following the end date of the plan year in question). For calendar years, this date is December 31st.

However, there are several situations in which QNEC deadlines and requirements can be flexible, including when using IRS safe harbor correction methods:  

IRS Safe Harbor Corrective Methods

Deadlines to Correct Elective Deferrals for Plans with Automatic Contributions

Failures are not uncommon in plans with automatic contribution features. Plan administrators  can fail to implement automatic contributions, or fail to implement an affirmative election. In each of these cases, however, plan sponsors and admins can avoid making the normally required  50% of missed elective deferrals QNECs if the following requirements are met:

  • The failure didn’t continue more than 9 ½ months after the end of the plan year (in which the error initially occurred).
  • Correct elective deferrals started back up by the first payroll date after, (or by the first payroll date for the next month after the admin or plan sponsor was notified of the issue).
  • Within 45 days of the correction, the employee has been provided with a special notice that they now have the opportunity for contribution. This notice has to contain the following: - An explanation of the error
  • An explanation of the correction process
  • A statement that the contribution was made to compensate for missed deferral opportunities
  • A statement reminding the participant of their ability to increase or decrease their elective contributions
  • Contact information for the plan administrator and sponsors
Deadlines for Non-Automatic 401(k) Elective Deferral Failures

The IRS also provides safe harbor corrective methods for elective deferral failures for plans without automotive contribution features which can mean reducing the QNEC amount, or avoiding them entirely.

If the elective deferral failure continues for:

  • Less than Three Months: - No QNEC required for the missed elective deferral.
  • Plan administrator must have quickly corrected the failure and notified the participant affected by the error (see the notice requirements above).
  • Longer than Three Months (but not past the end of the second plan year after the mistake was made): - Reduced QNEC – equal to 25% of the missed deferral (plus any missed matching contributions and earnings).
  • Again, the plan administrator must have quickly corrected the failure and notified the participant affected by the error (see the notice requirements above).

IRS Corrective Programs

Making 401(k) QNECs or QMACs to fix a mistake involves using an IRS-mandated corrective program – a set of guidelines and requirements for correcting the error. There are three corrective programs that the IRS allows you to use: the Self Correction, Voluntary Correction, and Audit Closing Agreement Programs.

Which corrective program you use depends on how significant the error and/or how delayed the realization that you need to make a QNEC or QMAC.

We’ll go over each below:

Self Correction Program

Good news: The Self-Correction Program (SCP) allows you to correct a mistake in your 401(k) plan administration before it bites you (or your employees) in the pocketbook. The SCP means you can solve the problem without contacting the IRS, paying a fee, filing an application, or submitting a report.

Under the SCP, you may self-correct insignificant operational errors at any time (though too late and you’ll need to make a Voluntary Correction Program, or VCP). “Operational” errors are the kind that arise from not following the exact written terms of the plan. Naturally, given that most 401(k) plans are a forest of fine print, operational errors are common, and so the SCP allows for quick and easy correction.  

If you take corrective action during the first year after the plan year (or calendar year: 01/01/2017 – 12/31/2017) you may use the SCP to correct significant operational errors. After the year, you may still use the SCP to correct insignificant operational errors.

Voluntary Correction Program

The Voluntary Correction Program (VCP) is for correcting mistakes that are a step up in severity from those corrected by the Self Correction Program.

Basically, if you aren’t under audit, but you still have significant issues with your plan document language or 401(k) plan administration, you can apply to correct the mistake with the VCP. This requires sending the Internal Revenue Service a written submission that lays out your proposed methods for correction, and paying the VC application fee. The IRS then reviews your application and methods and makes a decision.

As with the SCP, you can use the VCP to correct significant or insignificant errors before the year deadline. After that deadline, you must correct significant errors using the VCP.

Audit Closing Agreement Program

The Audit closing Agreement Program means you are under audit. Corrective actions made under this program are part of the audit as outlined and agreed upon by the IRS and the company. Penalties and sanctions are based on the fact and circumstances of the plan’s administration errors.

Because they aren’t contributed by the employee, QNECs and QMACs are not considered part of the maximum distributable amount in during a time of financial hardship. In essence, money contributed by the plan sponsor as part of a QNEC or QMAC can’t be used as part of a hardship withdrawal.

How to Avoid Needing to Make QNECs/QMACs

Alright, so this is a ton of information and none of it has been “the best news ever.” So let’s brighten the mood. QNECs/QMACs are time-consuming, confusing, and expensive. Here are some tips, tricks, and surefire strategies for avoiding all this hassle in the first place:

Pass Nondiscrimination Testing with These Tips and Tricks

Getting out ahead of non-discrimination testing is one of the only ways to avoid a slip-up. It’s too late for these tips if you already need to make a QNEC or QMAC, but they can certainly save you a major headache next time.

Get Compensation Correct

Collect payroll reports and W2s prior to testing.

Be sure these are up to date and for your calculated time period.

Computation Period Matters

Whether you are on a calendar year or plan year, you’ll need to make sure your data and calculations match up with this, or you’ll be dealing with major inaccuracies.

Rigorously Check Who Are HCEs and Key Employees

Things change. Don’t assume that a NHCE last year is a NHCE this year.

Also be aware of important special employment circumstances that could have an impact on group category, like the family members/relatives of the business owner(s).

Improve Your Employee Participation and Deferral Rates

Employees that don’t participate in the 401(k) plan bring down their group’s average deferral rates, meaning a lower contribution threshold for your HCEs and a plan more likely to fail testing.

Naturally, boosting your NHCE contribution and enrollment rates means a better average actual deferral percentage that will help you pass your ACP/ADP tests in the future, letting you avoid having to make QNECs or QMACs.

OR… Establish a Safe Harbor 401(k) Plan

A Safe Harbor 401(k) is a type of 401(k) plan design that allows you to circumvent these troublesome non-discrimination tests. The reason these plans are exempt from testing is that the IRS requires Safe Harbor plan sponsors to make regular employer contributions.

Here are the types of employer match available via Safe Harbor plans:

1. Basic Match: 100% match of employee deferrals of up to 3% of their compensation, and then a 50% match on the next 2% of their compensation.
2. Enhanced Match: 100% match (or more) of employee deferrals on at least 4% (maximum: 6%) of their compensation.
3. QACA Safe Harbor Match: 100% match on the first 1% of the employee’s compensation and then a 50% match on the next 5% of their compensation.
4. Non-elective 3% Safe Harbor: Employer contributes at least 3% of each employee’s compensation, regardless of whether the employee make contributions to the plan.

These plans exempt you from ADP and ACP tests by effectively making them unnecessary. By mandating specific employer contributions, the IRS can be reasonably sure of a healthy and fair 401(k) plan.


Hopefully we’ve gone some way towards untangling QNECs and QMACs. We’ve covered everything from the basic definition of a qualified non-elective contribution and qualified matching contribution and how to calculate them, to corrective programs and safe harbor options, to how to avoid dealing with this in the future.

If you have any questions about QNECs or QMACs  that we didn’t answer here, please feel free to contact us at


If you want an alternative to making QNECs/QMACs, read up on everything you need to know about corrective distributions in “The Complete Guide to 401(k) Corrective Distributions”

Download the 2024 Safe Harbor Guide
Understand new rules for 2024, benefits of Safe Harbor and strategies to minimize Safe Harbor costs.
Author profile pic
About Author -
David Ramirez, CFA

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines, a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

Join our newsletter to stay up to date on features and releases.
By subscribing you agree to with our Privacy Policy and provide consent to receive updates from our company.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.