Qualified Retirement Plan Rules - Review Questions Flashcards
Jack, age 25, has been working for Boat Company for two years and is now eligible to participate in Boat Company’s qualified plan. Boat Company must 100% vest Jack in his plan.
Choose the best answer.
True
False
True
The plan’s waiting period can be up to two years if the plan provides immediate 100% vesting upon entry.
Brenda works for ABC and contributes $1,500 to her qualified plan during her first year of participation in her plan. Her plan has a 3-year cliff vesting schedule. How much of her contributions can she take with her if she leaves ABC?
Choose the best answer.
1) $0
2) $750
3) $1,000
4) $1,500
4) $1,500
Brenda can take 100% of her contributions from the plan because employee contributions are always 100% vested. Employer contributions are the contributions that follow the vesting schedule
Using the two- to six-year graded vesting table above, after Jack has 4 years of service his vesting will be ____% of employer matching contributions.
After Jack has 4 years of service his vesting will be 60% of employer matching contributions.
Angio Corporation produces and sells equipment to hospitals and doctors that are used for tests involving heart patients. Angio employs 12 salespeople and 26 office staff. All employees have been with the company for more than one year and are over the age 21. Angio does not want the qualified plan to cover the salespeople. Eleven of the twelve sales people are highly compensated and six of the office staff are highly compensated. Will the plan pass the Safe Harbor Test?
If a total of 17 / 38 of the employees are highly compensated, then 21 are non-highly compensated. Therefore, the plan would need to cover at least 15 non-highly compensated employees to pass (21 × .70 = 14.7) Angio does not want the plan to cover salespeople and one of the salespeople is a non-highly compensated employee. Because Angio Corporation will cover 20 non-highly compensated employees who work in the office it passes the Safe Harbor Test.
Annual additions in defined contribution plans include employer contributions and employee salary reductions, but does not include forfeitures.
Choose the best answer.
True False
False
The annual additions include: employer contributions, employee salary reductions, and forfeitures reallocated from other participants’ accounts.
Which of the following characterizes a key employee for the purposes of the top-heavy rule? (Check all that are true.)
1) An officer of the employer having annual compensation greater than $220,000
2) Any employee who met one of the foregoing requirements during a four-year lookback period
3) A more-than-five-percent owner of the employer
4) A more-than-one-percent owner of the employer having annual compensation from the employer of more
than $150,000
1) An officer of the employer having annual compensation greater than $220,000
3) A more-than-five-percent owner of the employer
4) A more-than-one-percent owner of the employer having annual compensation from the employer of more
than $150,000
A key employee for purposes of the top-heavy rules is an employee who, at any time during the plan year, is: an officer of the employer having annual compensation greater than $220,000 in 2024, which is indexed for inflation in increments of $5,000; a more-than-five-percent owner of the employer; or a more-than-one-percent owner of the employer having annual compensation from the employer of more than $150,000.
A plan formula provides 40% of final average compensation with an offset. The lowest paid employee must receive at least what percentage of the final average compensation from the plan?
Choose the best answer.
1) 10%
2) 20%
3) 40%
4) 60%
2) 20%
The Code and regulations provide limits on the extent of an offset for Social Security. In particular, the rules provide that no more than half of the benefit provided under the formula without the offset may be taken away by an offset.
A business owner client has asked for your assistance in establishing a qualified section 401(k) retirement plan for her employees. She has a relatively large number of employees who begin working at her company then leave after a short period of time. In order to simplify the administration of the plan and to promote employee retention, you recommend establishing specific eligibility requirements employees must meet before they would be allowed to participate in the plan. Which of the following eligibility requirements would you recommend while retaining the proposed plans qualified status?
I) Two years of employment with the company, working a minimum of 500 hours in each year
II) An age restriction requiring participants to be age 18 or older
III) One year of employment with the company, working a minimum of 1,000 hours in that year
IV) An age restriction requiring participants to be under the age of 65
V) An age restriction requiring participants to be age 21 or older
Choose the best answer.
1) II, III, IV
2) III, V
3) I, II, IV
4) II, III
2) III, V
Make U Money Inc. has just received their annual compliance testing results for their company retirement plan from the plan’s administrator. The current workforce is composed of a number of highly compensated (HCE) and non-highly compensated (NHCE) employees, some of whom are eligible for the company’s retirement plan and some of whom are not. The current breakdown is as follows:
30 NHCE’s who are covered by the plan, with an average benefit of 6% of compensation
20 NHCE’s who are not covered by the plan
40 HCE’s who are covered by the plan, with an average benefit of 9% of compensation
10 HCE’s who are not covered by the plan
Given this information, which of the following is the compliance report likely to indicate concerning the plan’s status with respect to qualified plan coverage requirements?
Choose the best answer.
1) The plan does not meet the Safe Harbor Test or Ratio Percentage Test, but does satisfy the Average Benefits
Test.
2) The plan meets the Safe Harbor Test.
3) The plan does not meet any of the possible coverage requirement tests.
4) The plan does not meet the Safe Harbor Test but does meet the Ratio Percentage Test.
4) The plan does not meet the Safe Harbor Test but does meet the Ratio Percentage Test.
The plan covers 60% of NHCE’s and 80% of HCE’s. It fails the Safe Harbor Test as fewer than 70% of NHCE’s are covered by the plan, but meets the Ratio Percentage Test as the ratio of covered NHCE’s to HCE’s is over 70% (60% divided by 80% = 75%).
Which of the following employees of Make U Money would be considered highly compensated and/or key employees as defined for the 2024 tax year? Assume each of these employees has been with the company for two years or more, are over the age of 21, are not covered by a collective bargaining agreement, and work full time year-round.
Jim – A partner with a 40% ownership stake in the business, who earns $80,000 per year in W-2 compensation
Will – A senior employee who earned $110,000 in compensation in 2023 and has a 4% ownership stake in the business
Anne – Jim’s daughter, who earns $40,000 per year and has no direct ownership
Kate – A sales rep who had a good year in 2023 and earned $160,000 in compensation
Catherine – A former employee who still has an account with the plan, and who earned $160,000 per year before leaving two years ago.
Choose the best answer.
1) Jim, Kate, and Catherine are HCE’s. Jim is the only key employee.
2) All employees except for Will are HCE’s. Jim is the only key employee.
3) All employees except for Will are HCE’s. There are no key employees.
4) Jim, Will, and Kate are HCE’s. Jim and Will are also key employees.
2) All employees except for Will are HCE’s. Jim is the only key employee.
Melissa and Tim are a married couple each contributing to their own employer-sponsored defined contribution plans. Melissa will be 52 at the end of this year, and Tim will be 48. Each of their plans provides for pre-tax, Roth, or non-Roth after-tax contributions. What is the maximum amount that they may contribute as a couple to qualified retirement plans in 2024? Assume they are not subject to any contribution limitations due to compliance testing, and that no employer contributions are expected for 2024.
Choose the best answer.
1) $46,000 in pre-tax or Roth contributions, and $92,000 in non-Roth after-tax contributions
2) $46,000 in pre-tax or Roth contributions, and $75,000 in non-Roth after-tax contributions
3) $53,500 in pre-tax or Roth contributions, and $92,000 in non-Roth after-tax contributions
4) $53,500 in pre-tax or Roth contributions, and $75,000 in non-Roth after-tax contributions
3) $53,500 in pre-tax or Roth contributions, and $92,000 in non-Roth after-tax contributions
They may each contribute up to $23,000 in pre-tax or Roth contributions to their plans. Melissa may additionally make catch-up contributions of $7,500 per year as pre-tax or Roth contributions since she will be at least 50 years of age at the end of the plan year. Non-Roth after-tax contributions are limited only by the total contribution limit of $69,000. As catch-up contributions do not impact this limit they may each contribute an additional $46,000 to their respective plans as non-Roth after-tax contributions if allowable under the terms of the plan.
