Hard????

Question 1

Profit Sharing Plan

Nicholas earns $320,000 annually. The plan provides for a contribution of 25% of participants’ covered compensation. Calculate the contribution for Nicholas?

Answer 1

25% of $285,000 (2020) = $71,250; however, there is a $57,000 (2020) annual additions limit. Therefore, the maximum allowable contribution is $57,000

Question 2

Qualified or NQ

ESOP
ISO
Profit Sharing
RSU

Answer 2

ESOP = Qualified plan invested in the employer stock

ISO = NQ plan (invested in company stock)

Profit Sharing = Qualified plan (Erisa requires at least 3 investment options)

RSU = NQ (Invested in company stock)

Question 3

Raul is a 50-year-old businessowner with one employee, who earns $18,000 per year. Raul earns $170,000 per year and is establishing a profit-sharing plan that uses an age-weighted feature. The age-weighting formula allocates $27,850 to Raul and $350 to the employee. Which of the following statements is CORRECT?

A) The contribution for worker is $350 and it will be deductible.

B) The plan cannot allow the employee to direct the investment of his share of the plan’s assets.

C) Raul can make a deductible contribution of up to $4,500 for his employee.

D) The contribution that must be made to the employee’s account is $540.

E) A 3 to 7-year graded vesting schedule would be appropriate for this plan.

Answer 3

D) The contribution that must be made to the employee’s account is $540.

The plan is top heavy, resulting in a minimum contribution to all nonkey employees of 3%. Therefore, the contribution that must be made to the employee’s account is $540 (3% of $18,000). Top-heavy plans must use either a 3-year cliff or a 2- to 6-year vesting schedule. An employer can actually contribute more than $4,500 for employees as long as total contributions for all employees do not exceed 25% of aggregate covered compensation and the contributions do not violate the nondiscrimination rules. Either the employer (or plan trustee) can invest the plan’s assets or employees can be allowed to choose from among several different investment options in which to invest their own account balance

Question 4

THE 50/40 TEST

All defined benefit pension plans must benefit no fewer than the lesser of the following:

Answer 4

a. 50 employees

b. 40% or more of all nonexcludable employees
1. ) For purposes of the 40% test, the plan does not have to consider employees who are not eligible for the plan.
2. ) Noneligible employees include the following:
a. ) Employees who do not meet age and service requirements (typically, age 21 and one year of service)
b. ) Excluded employees, such as union employees, certain airline pilots, and nonresident aliens

Question 5

A key employee is an employee who at any time during the plan year or prior year met one of the following definitions:

1. ) An officer with compensation in excess of $………. (2020)
2. ) A greater than ……% owner
3. ) A greater than …….% owner with compensation >$……. (not indexed)

Answer 5

A key employee is an employee who at any time during the plan year or prior year met one of the following definitions:

1. ) An officer with compensation in excess of $185,000 (2020)
2. ) A greater than 5% owner
3. ) A greater than 1% owner with compensation >$150,000 (not indexed)

Question 6

A highly compensated employee (HCE) is an employee who meets one of the following criteria:

1. ) Was a greater than …….% owner of the employer at any time during the current year or preceding year
2. ) For the preceding year, had compensation greater than $………. (2020) from the employer

Answer 6

A highly compensated employee (HCE) is an employee who meets one of the following criteria:

1. ) Was a greater than 5% owner of the employer at any time during the current year or preceding year (5% exactly is not enough ownership to be an HCE)
2. ) For the preceding year, had compensation greater than $130,000 (2020) from the employer

Question 7

Traditional defined benefit pension plans must vest at least as rapidly as one of the following two schedules (assuming the plan is not top heavy):

1. ) …….-year cliff vesting—No vesting is required before …… years of service; 100% vesting is required after ……. years of service.
2. ) ……-…….-year graduated (or graded) vesting—

Answer 7

Traditional defined benefit pension plans must vest at least as rapidly as one of the following two schedules (assuming the plan is not top heavy):

1. ) Five-year cliff vesting—No vesting is required before five years of service; 100% vesting is required after five years of service.
2. ) 3–7-year graduated (or graded) vesting—

Question 8

Defined contribution plans must vest at least as rapidly as one of the following two schedules for all employer nonelective contributions and matching contributions:
1.) ……..-year cliff vesting—No vesting is required before …… years of service; 100% vesting is required upon the completion of …….. years of service.

2.) ……-…….-year graduated (or graded) vesting—

Answer 8

2. Defined contribution plans must vest at least as rapidly as one of the following two schedules for all employer nonelective contributions and matching contributions:
3. ) Three-year cliff vesting—No vesting is required before three years of service; 100% vesting is required upon the completion of three years of service.
4. ) 2–6-year graduated (or graded) vesting—