Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

B2 Retirement Planes Administration > Nondiscrimunation Testing > Flashcards

Nondiscrimunation Testing Flashcards

1
Q

What designations are used for employees under the nondiscrimination rules?

A

Non-highly compensated (NHC) and highly compensated (HC)

These designations are crucial for conducting nondiscrimination testing in employee benefit plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is required for a company to be considered a member of a controlled group?

A

Ownership of at least 80% by a corporation

This rule helps define the relationships between companies for regulatory purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How is ownership tested for individuals or noncorporate entities in controlled groups?

A

A separate test is applied

This ensures that the rules are applicable to various types of ownership structures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What must employers of affiliated companies do for nondiscrimination testing?

A

Aggregate data if considered a controlled group

This aggregation is necessary to evaluate compliance with nondiscrimination rules.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What do minimum coverage rules focus on?

A

The relative proportion of NHCEs and HCEs who benefit

This is essential to ensure that plans do not disproportionately favor highly compensated employees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What qualifies an employee as ‘benefiting’ under a plan?

A

They must receive contributions or accrual increases during the plan year

This includes both defined contribution (DC) and defined benefit (DB) plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the significance of employees eligible to defer salary under 401(k) plans?

A

They are considered ‘benefiting employees’

This applies even if they do not receive contributions due to non-participation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are ADP and ACP tests used for?

A

To determine if contributions discriminate in favor of highly compensated employees

These tests help ensure compliance with nondiscrimination rules in retirement plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does the ADP test stand for?

A

Actual deferral percentage test

This test is applied to employee contributions in 401(k) plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does the ACP test stand for?

A

Actual contribution percentage test

This test applies to employer matching and after-tax contributions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Defined contribution plans must meet qualification requirements. What are the two IRS sections that meet the requirement for non-discrimination testing?

A

Minimum participation standards
IRC section 410(b)

Non-discriminatory contribution/benefit rule
IRC section 401 (a)(4)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is IRC section 410(b)

A

Minimum participation standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is IRC section 401(a)(4)

A

Non-discriminatory contribution/benefit rule

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What question is answered by IRC section 410(b)?

A

Is the plans coverage non-discriminatory?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Under IRC section 410 B related to minimum coverage , what are the two test used to test for non-discriminatory coverage?

A

Ratio percentage test

Average benefits test

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Minimum coverage rules, IRC 410 B

Define the rat ratio percentage test

A

The plan benefits, a percentage of non-highly compensated employees that is at least 70% of the percentage of highly compensated employees that it benefits

17
Q

Minimum coverage rules, IRC section 410 B

Define the average benefits test

A

This test is based on participant demographics, which change often

The plan must benefit employees who qualify under the employers classification system that is non-discriminatory in favor of highly compensated employees (classification test)

AND

The average benefit percentage for nine highly compensated employees must be at least 70% of the average benefit percentage for highly compensated employees, including the benefits, provided by Social Security

18
Q

Ratio percentage test example

A
19
Q

Regarding the ratio percentage test to test for coverage, what does benefited under the plan mean?

A

Benefited under the plan means that the employee is eligible… it does not mean they’re enrolled

20
Q

IRC section 401(a)(4) non-discriminatory contribution benefit rule

What question is answered ?

A

Are the contributions and benefits non-discriminatory

21
Q

What are the two alternatives for satisfying the requirements of the non-discriminate Tori contribution benefit rule?

A
  1. Design based safe harbors
    -Uniform contribution/benefit rate, plan does not fail with contributions and benefits, are uniform relative to compensation for all participants

-Safeharbor integration

-401K plan that passes ADP ACP testing

  1. General test
    - Restructure component plans based on contribution/benefit percentages of different employee groups with a plan and have each component comply with minimum coverage rules
22
Q

Non-discrimination testing, define actual deferral percentage test ADP

A
  • Pretax employee contributions

-must be passed each year

  • Matching contributions may be used only if immediately vested subject to distribution limitations
23
Q

Non-discrimination, testing actual contribution percentage test ACP

A
  • After tax employee, contributions, and matching contributions
  • must be passed each year
  • Employer and matching contributions (except matching contributions used in ADP test)
24
Q

IRC 401(a)(4) imposes ADP and ACP test testing for which type of accounts

A

401(k)

25
Q

In order to perform ADP/ACP test what must be determined first

A

The relative deferral and contribution percentages of the organizations, highly compensated, employees and non-highly compensated employees

26
Q

What is IRC section 415 pay?

A

415 page is not just W-2 earnings; and include several types of income and is a fairly technical definition as defined in the IRC

27
Q

When conducting non-discrimination testing what is the prior data rule?

A

Under non-discrimination rules, prior year data is used for determining highly compensated, employees and current or prior year non-highly compensated employee data determines the maximum deferral for highly compensated employees in the current year

28
Q

What IRS code section defines pay

A

415

29
Q

What is the ADP/ACP basic test?

A

The ADP/ACP basic test(1.25 test) allows highly compensated employees to have contributions no more than 1.25 times the contributions of non-highly compensated employees.

Example: if NHCEs average 4% contributions, HCE must be equal or less than 1.25*4% (5%)

30
Q

How is the ADP/ACP alternative test?(2x2 test.) conducted.

A

HCE contributions can be no more than the lesser of:

2 times the contributions of NHCE

Or

2 percentage points greater than the contributions of NHCEs

Whichever is less…

31
Q

Study example for ADPACP testing…

A

B2 Retirement Planes Administration (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions