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

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%.

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 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.

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

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.

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

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.

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

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).

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC Qualified Plan Compliance & Nondiscrimination Testing 3