Single Employer MDC, HCE, Comp Limit

Question 1

How is the 404 (MDC) AVA adjusted for:

1. PFB/CB
2. Previous non-deductible contributions

Answer 1

1. PFB/CB is used for tracking minimums, so no adjustment for MDC
2. Assets would be reduced by non-deductible contributions

Question 2

What is the 404 limit on compensation?

Answer 2

It is the same as the 401(a)(17) limit on compensation. Maximum amount of comp that can be used when determining a benefit under a DB/DC plan.

Question 3

How does the 415 limit and 404 comp limit apply to the MDC?

Answer 3

The 415 limit would be used when calculating the FT that is used in the Cushion and MDC.

The 404 comp limit is essentially the same as the 401(a)(17) limit and can be projected forward when determining the cushion amount if plan is covered by PBGC.

Question 4

How do the MDC Assumptions compare to the 430 funding target assumptions?

Answer 4

They are the same, but the 404 MDC will ignore the effects of MAP-21 on the segments for funding target.

Question 5

What is the cushion amount under 404?

Answer 5

It is the sum of 50% of the funding target + increase in the funding target if the plan allowed for future compensation increases.

If the plan benefit is not compensation based then can adjust upwards based on the increase in benefits over prior 6 plan years.

Question 6

The Cushion Amount is reduced by certain amendments for some plans. What amendment and what plans?

Answer 6

If the plan has less than 100 ptps in the current year aggregating all non-multiemployer DB plans in controlled group which are participants of employer, then reduce funding target in cushion amount by the benefit increases bfor HCEs due to plan amendments adopted or effective within last 2 years.

Question 7

What is maximum deductible limit for single employer plans? Note Don’t define Cushion, just say Cushion.

Answer 7

Greater of:

1. MRC
2. FT + TNC + Cushion - AVA,

For not-at-risk plans,

3. at-risk TNC + at-risk FT - AVA

Question 8

How is compensation defined for owner-employees and self-employed people?

Answer 8

it is earned income less contributions to pension plan for employee

Question 9

What is the maximum contribution limit for owner-employees?

Answer 9

100% of earned income

Question 10

How is the MDC changed for terminating plans?

Answer 10

Can deduct the amount required to make plan sufficient to go through a standard termination process IF the plan is covered by the PBGC

Question 11

Is at-risk status the same for 430 funding and 404 maximum deductible contributions?

Answer 11

No - 404 must be done without regard to stabilization and 430 is done with stabilization.

Question 12

Definition of HCE

Answer 12

1. 5% owner in at any time during current year or prior year
2. OR Had compensation above the HCE limit in prior year
3. OR if the employer elects to use top-paid group, then instead of (2), it is just the top 20% of employees ranked by salary
   
   1. Note that if fractional, you can round up or down.

Less Tested: Officer

Question 13

If a plan is a non-calander year, i.e. plan runs 7/1/2019 to 6/30/2020, then do you use the HCE limit for 2019 or 2020. When is the pay as of?

Answer 13

HCE Limit 2018 (Always the year in which the plan comp begins)

Pay would be 7/1/2018 to 6/30/2019

Question 14

If a plan runs 1/1/2019 to 12/31/2019, then do you use the HCE limit for 2019 or 2020. When is the pay as of?

Answer 14

You would use the pay from the prior year, so you use the limit from the prior year as well. I.e. 2018 pay, 2018 limit.

Question 15

In determining an HCE, how are employees that performed no services treated?

Answer 15

Excluded, can’t be an HCE.

Question 16

When considering stock for the 5% ownership rule, what family members must be considered?

Answer 16

2 down, 1 up, 1 left

Children, Grandchildren, Parents, Spouse

Question 17

T/F If Smith owns 5% of stock in a company, he is a 5% owner.

Answer 17

False - must own more than 5% to be a 5% owner

Question 18

T/F Employer A elects to use top paid group to determine the HCEs. Employee B is not in high paid group, but is a 5% owner. Employee B is not an HCE.

Answer 18

FALSE

Question 19

T/F Employer A elects to use top paid group to determine the HCEs for 2020. Employee B is in high paid group based on 2019 salary, but does not work any hours in 2020. Employee B is not an HCE.

Answer 19

True - must work in the year you are determining HCEs

Question 20

If we are determining 2008 HCEs and a participant terminates during 2007, are they included in top paid group, are than an HCE?

Answer 20

They would be included for purposes of the top paid group, but would not be an HCE because they didn’t work during the current plan year.

Question 21

How does 401(a)(17) apply to benefits? How about to benefits with averaged salary?

Answer 21

1. It limits the amount of compensation that can be used for benefits
2. Limit applied before the averaging occurs

Question 22

A plan runs from 7/1/2018 to 4/1/2019. 401(a)(17) limits for 2018 is $220K and $225K for 2019. What is the limit for this plan year?

Answer 22

0.75 (for short plan year) * $220K

Question 23

T/F if a participant is only employed for part of the year, then the 401(a)(17) limit is pro-rata.

Answer 23

FALSE

Question 24

How does 401(a)(17) apply to benefits using pre-2002 salaries.

Answer 24

Can be limited to 200,000 instead of actual limit in effect for the year if plan provides.

Question 25

For non calendar year plans when is the 401(a)(17) limit as of?

Answer 25

one in effect at beginning of year

Question 26

How is 401(a)(17) handled for multiemployer plans?

Answer 26

Limit applied separately for each employer

Question 27

How are employee salary deferals treated for purposes of the maximum deductible limit?

Answer 27

They are treated as employee contributions and are not subject to the deductible limit. I.e. you can always deduct these contributions.

Question 28

Would employee salary deferals be included in total compensation?

Answer 28

Yes

Question 29

What is the maximum deductible contribution for a:

Stock Bonus Plan

Profit Sharing Plan

Money Purchase Plan

Answer 29

Stock Bonus Plan and Profit Sharing Plan - 25% of total compensation

Money Purchase Plan - 25% of total compensation but also subject to the minimum funding standards in the plan document.

Question 30

What are the 5 exceptions to the DB/DC MDC limit?

Answer 30

1. No employee covered under DC and DB plan
2. DC plan contributions are only 401(k) salary deferals
3. DC contributions are less than 6%
4. Single Employer DB plan covered by PBGC
5. Either plan is Multi-employer plan

Question 31

What is the 404(a)(7) MDC limit for an employer with a DB and a DC plan?

Answer 31

Greater of

1. 25% of compensation and
2. DB minimum

Alternatively you can use the FT - AVA if the full deduction is taken from the DB plan only

Question 32

Can the combined DC/DB limit ever lead to a MDC limit that is higher than the individual plans?

Answer 32

No limit the plans based on the DB MDC limit and the DC MDC limit as well.

Question 33

What is the Excise tax for a non-deductible contribution?

Answer 33

It is 10% of the non-deductible contribution paid each year it is non-deductible.