Qualified Plan Compliance & Nondiscrimination Testing Flashcards

Under IRC Section 411, what is the maximum cliff vesting schedule permitted for employer contributions to a non-top-heavy qualified plan?

Answer: 3 years

Non-top-heavy plans may use cliff vesting up to 3 years, requiring employees to be 100% vested upon completing 3 years of service.

Under the graded vesting schedule for non-top-heavy defined contribution plans, what percentage must an employee be vested after completing 4 years of service?

Answer: 60%

Under the 2-to-6-year graded schedule, employees vest 20% per year starting at year 2: 20% at year 2, 40% at year 3, 60% at year 4, 80% at year 5, and 100% at year 6.

For vesting purposes under ERISA, a 'year of service' is generally defined as a 12-consecutive-month period in which an employee completes at least how many hours of service?

Answer: 1,000 hours

An employee must complete at least 1,000 hours of service within a 12-consecutive-month period to be credited with a year of service for vesting purposes.

Under the 'rule of parity,' an employer may disregard an employee's pre-break years of service if the consecutive one-year breaks in service equal or exceed which threshold?

Answer: The greater of 5 years or pre-break years of service

The rule of parity permits disregarding pre-break service if the number of consecutive one-year breaks equals or exceeds the greater of 5 years or the employee's years of pre-break service.

The '133-1/3 percent rule' for defined benefit plan accrual under IRC Section 411(b) prohibits the rate of future benefit accrual from exceeding what percentage of the rate of accrual for prior years?

Answer: 133-1/3%

The 133-1/3% rule prevents back-loaded accruals by capping the annual accrual rate for later years at no more than 133.33% of the accrual rate for any earlier year.

Under the fractional accrual method for defined benefit plans, an employee projected to have 20 years of service at normal retirement has earned what fraction of their projected benefit after completing 10 years?

Answer: 1/2 of projected benefit

The fractional accrual method credits an employee with a benefit equal to their actual service divided by projected total service, so 10/20 = 1/2 of the projected normal retirement benefit.

Under ERISA's break-in-service restoration rules, if a previously vested employee terminates, receives a distribution, and later returns to service, when must the employer restore previously forfeited employer contributions?

Answer: If the break in service is less than 5 consecutive years

Under the five-year break rule, a returning employee's forfeited amounts must be restored if they had fewer than 5 consecutive one-year breaks in service.