Practice Test Geeks(CPC) Certified Pension Consultant Practice Test
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Qualified Plan Compliance & Nondiscrimination Testing Flashcards

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  1. Under the ADP test for a 401(k) plan, if the actual deferral percentage (ADP) of non-highly compensated employees (NHCEs) is 5%, what is the maximum ADP permitted for highly compensated employees (HCEs)?

    Answer: 7%

    When the NHCE ADP falls between 2% and 8%, the HCE ADP may be up to the NHCE ADP plus 2 percentage points; therefore, 5% + 2% = 7%.

  2. Which safe harbor 401(k) non-elective contribution design eliminates the need for annual ADP and ACP nondiscrimination testing?

    Answer: A 3% non-elective contribution to all eligible non-highly compensated employees

    A safe harbor 401(k) plan that provides a non-elective contribution of at least 3% of compensation to all eligible NHCEs satisfies the ADP and ACP safe harbor requirements.

  3. Under IRC Section 416, a qualified retirement plan is considered 'top-heavy' when the present value of accrued benefits or account balances of key employees exceeds what percentage of total plan assets?

    Answer: 60%

    A plan is top-heavy when key employees hold more than 60% of the aggregate present value of all accrued benefits or account balances under the plan.

  4. Under the top-heavy minimum contribution requirement of IRC Section 416, what minimum employer contribution must a top-heavy defined contribution plan make on behalf of each eligible non-key employee?

    Answer: 3% of compensation (or the highest key employee rate, if lower)

    Top-heavy plans must contribute the lesser of 3% of compensation or the highest contribution rate made for any key employee to each eligible non-key employee.

  5. Under IRC Section 416, which of the following employees is classified as a 'key employee' for top-heavy testing purposes?

    Answer: A 5% owner, a 1% owner earning over $150,000, or an officer earning more than $220,000 (2024 threshold)

    Key employees under IRC 416 include 5% owners, 1% owners with compensation over $150,000, and officers whose compensation exceeds the indexed threshold ($220,000 for 2024).

  6. The ACP (Actual Contribution Percentage) test under IRC Section 401(m) applies to which types of contributions made to a 401(k) plan?

    Answer: Employer matching contributions and voluntary after-tax employee contributions

    The ACP test applies to employer matching contributions and voluntary after-tax employee contributions, which are separate from elective deferrals tested under the ADP test.

  7. A 401(k) plan fails the ADP test for the current plan year. Which of the following is a permissible corrective action the employer may take to cure the failure?

    Answer: Make qualified non-elective contributions (QNECs) to NHCEs sufficient to bring the plan into compliance

    Making QNECs to eligible NHCEs raises the NHCE ADP and can bring the plan into ADP test compliance without penalizing HCEs or requiring distributions.