CH 7 - Coverage, Eligibility, & Participation Rules

Question 1

Who is considered a Highly Compensated Employee (HCE)?

Answer 1

• 5% owners in current year
• individuals earning $120,000 in previous year
• the company can also elect all the top 20% of earners

Question 2

Non-discrimination rules prohibit __________ and __________ plans from discriminating in favor of highly compensated employees.

Answer 2

all qualified plans

and

403(b)

Question 3

What is the 410(b) rule?

Answer 3

This lets a plan cover any portion of the workforce if the percentage, ratio, or average percentage test is satisfied.

Question 4

Describe the following based on a plan’s ability to satisfy the minimum-coverage tests.

A. percentage test: _________

B. ratio test: _________

C. average-benefit test: _________

Answer 4

A. percentage = cover at least 70% of all non-HCE

B. ratio = non-HCE percentage must be at least 70% of the of HCE percentage

C. average-benefit test: Must satisfy three tests (reasonable job classification test, modest percentage coverage test, and the test where average benefits of NHCEs are at least 70% of the benefits of the HCEs (looking at all qualified plans))

Question 5

Aggregation rules are intended to…

Answer 5

eliminate coverage abuses by treating ALL related entities as one company when testing under the coverage rules.

Question 6

Related companies can be treated as seperate operating units if the unit has how many employees?

Answer 6

+50 employees

Question 7

Explain the TWO different types of controlled groups.

a) parent = __________
b) brother/sister = __________

Answer 7

• parent = 80% ownership
• brother/sister = 5 or fewer owners of 80% or more of both companies where the identical ownership is more than 50%

Question 8

This happens when two or more business entities work together to provide one service or product to the public; at least one of the entities must be a service organization (such as law, medicine, or engineering) and there must be some common ownership among the entities.

Answer 8

affiliated service group

Question 9

When are leased employees treated as full time employees?

Answer 9

After the completion of 1 year (1500 hours a year)

Question 10

401(a)(26) minimum participation rules only applies to __________.

Answer 10

defined benefit plans

Question 11

401(a)(26) minimum participation rules covers the lesser of

Answer 11

50 employees or 40% of the employees (if only two employees, they must cover both)

Question 12

What are the FOUR rules for determining when participation must begin?

Answer 12

• 21-and-1 rule (Age 21 and 1 year)
• Age 21 and 2 years (if full vesting)
• Entry date must be within 6 months of satisfying eligibility
• Complete 1,000 hours within a 12 month period (eg - 3/1/2015 to 2/28/2016)