CPM CPM Retirement Plans & 401(k) Administration 2 — Questions and Answers
Question 1: Which law governs the minimum standards for most voluntarily established retirement plans in private industry?
- FMLA
- ERISA (Correct answer)
- FLSA
- COBRA
Correct answer: ERISA
ERISA (Employee Retirement Income Security Act of 1974) sets minimum standards for pension and benefit plans in private industry.
Question 2: What is a Required Minimum Distribution (RMD)?
- The minimum amount an employer must contribute each year
- The minimum withdrawal a participant must take from a retirement account starting at a certain age (Correct answer)
- The minimum plan balance to avoid administrative fees
- The minimum employer match required under ERISA
Correct answer: The minimum withdrawal a participant must take from a retirement account starting at a certain age
An RMD is the minimum amount the IRS requires retirement account owners to withdraw annually, beginning at age 73 under SECURE 2.0.
Question 3: How is a 401(k) hardship withdrawal different from a 401(k) loan?
- A hardship withdrawal must be repaid; a loan does not
- A hardship withdrawal is not repaid and is generally taxable; a loan is repaid with interest (Correct answer)
- Both are tax-free
- A loan permanently reduces the account balance
Correct answer: A hardship withdrawal is not repaid and is generally taxable; a loan is repaid with interest
A hardship withdrawal permanently reduces the account balance and is taxable income, while a loan is repaid with interest and not immediately taxable.
Question 4: What is the ADP test in 401(k) plan administration?
- Annual Disclosure Process — a reporting requirement to the SEC
- Actual Deferral Percentage test — a nondiscrimination test comparing HCE and NHCE deferral rates (Correct answer)
- Automated Deposit Protocol — the rule for depositing employee deferrals
- Annual Distribution Policy — governs RMDs
Correct answer: Actual Deferral Percentage test — a nondiscrimination test comparing HCE and NHCE deferral rates
The ADP (Actual Deferral Percentage) test ensures that highly compensated employee deferral rates do not exceed allowable limits relative to non-highly compensated employees.
Question 5: When must employee 401(k) deferrals be deposited into the plan trust?
- Within 30 business days of the payroll period end
- By the 15th of the following month
- As soon as administratively feasible, but no later than the 7th business day for small plans or 15 business days for large plans under DOL safe harbor (Correct answer)
- Within 60 calendar days of payroll
Correct answer: As soon as administratively feasible, but no later than the 7th business day for small plans or 15 business days for large plans under DOL safe harbor
The DOL requires deferrals to be deposited as soon as reasonably possible; the safe harbor is 7 business days for small plans and no later than 15 business days for larger plans.
Question 6: Which form is used to report distributions from a 401(k) plan to a participant or beneficiary?
- Form W-2
- Form 1099-R (Correct answer)
- Form 5498
- Form 1099-MISC
Correct answer: Form 1099-R
Form 1099-R is issued to report distributions from retirement plans, IRAs, and annuities.
CPM CPM Retirement Plans & 401(k) Administration 2
Which law governs the minimum standards for most voluntarily established retirement plans in private industry?