Unit 8: ER Contributions

Question 1

What is the most stringent requirements for employer contributions?

Answer 1

1000 hours and last day rule

Question 2

Pro rata is limited to a percentage basis application, true or false?

Answer 2

False. Pro rata can be applied on a percentage basis or dollar basis.

Question 3

How is pro rata calculated on a dollar basis?

Answer 3

The participants eligible wages are divided by all eligible wages this provides an allocation percentage.

The allocation percentage is multiplied against the total dollar amount desired to be funded by the employer.

The resulting amount equals the pro rata dollar allocation

Question 4

Pro rata uses what formula that satisfies nondiscrimination requirements?

Answer 4

Safeharbor formula

Question 5

What is the other safe Harbor formula option for profit sharing?

Answer 5

Permitted disparity

Question 6

Where in the tax code are the safe harbor permitted disparity rules located?

Answer 6

401C

Question 7

Cross testing or new comparability profit-sharing formulas are safe harbor formulas because they are tested, true or false?

Answer 7

False. They are not safe Harbor and do require annual non-discrimination testing

Question 8

The gateway test equals the Maximum contribution required by the department of labor, true or false?

Answer 8

False. The gateway test is the minimum contribution required by the IRS

Question 9

What is the gateway tests minimum contribution?

Answer 9

1: each non-HCE receives a benefit no less than 1/3 of the highest benefitting HCE

2: each non-HCE receives a contribution of at least 5%

Question 10

What is the 415 limit?

Answer 10

100% of compensation or $62,000

Question 11

What 4 money sources comprise the 415 limit?

Answer 11

Pretax/Roth deferrals

After tax deferral’s

All employer contributions

Forfeitures

Question 12

What 4 money sources are not included in the 415 limit?

CLIER

Answer 12

Rollovers

Catch-up contributions

Loan repayments

Investment earnings

Question 13

For a Plan Administrator, what are the four steps for correcting excess contributions on a plan?

3- EE
1-ER

Answer 13

Recharacterize any excess deferral’s as catch up if permitted

Refund any after-tax contributions back to Participant

Refund any excess deferrals back to the participant

Any accompanying match must be proportionally reduced and placed into a suspense account that is allocated to other participants