CPC Qualified Plan Compliance & Nondiscrimination Testing 3

Question 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)?

Accepted Answer

7%

Answer

6.25%

Answer

7.5%

Answer

10%

Question 2

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

Accepted Answer

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

Answer

A 2% non-elective contribution to all plan participants

Answer

A 50% matching contribution on employee deferrals up to 6% of compensation

Answer

A 5% profit-sharing contribution allocated only to officers

Question 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?

Accepted Answer

60%

Answer

50%

Answer

70%

Answer

75%

Question 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?

Accepted Answer

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

Answer

1% of compensation

Answer

5% of compensation

Answer

An amount equal to the average contribution rate for all key employees

Question 5

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

Accepted Answer

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

Answer

Any employee earning more than $100,000 in the prior year

Answer

Any highly compensated employee as defined under IRC Section 414(q)

Answer

Any employee in the top 20% of compensation who is a plan participant

Question 6

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

Accepted Answer

Employer matching contributions and voluntary after-tax employee contributions

Answer

Employee elective deferrals only

Answer

Employer profit-sharing and non-elective contributions only

Answer

All employer contributions including non-elective, matching, and qualified non-elective contributions

Question 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?

Accepted Answer

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

Answer

Automatically convert all HCE deferrals to after-tax Roth contributions

Answer

Permanently reduce the HCE contribution limit to 3% of compensation

Answer

Transfer excess HCE balances into a non-qualified deferred compensation plan