Retirement Plan Design Flashcards
7 cards from real CRC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Retirement Plan Design flashcards as text
An employer with 80 employees adopts a SIMPLE IRA. The maximum employer matching contribution as a percentage of compensation is:
Answer: 3%
Under a SIMPLE IRA, the standard employer match is dollar-for-dollar up to 3% of the employee's compensation.
Which vesting schedule is more favorable to employees who leave early?
Answer: 3-year graded vesting
A 3-year graded schedule (e.g., 20%/year) gives employees partial vesting starting earlier than cliff schedules that provide nothing until fully vested.
Which of the following is NOT a permissible in-service distribution event under a 401(k) plan?
Answer: Desire to purchase a vacation home without financial hardship
A general desire to purchase a vacation home without meeting hardship criteria is not a permissible in-service distribution event under a 401(k) plan.
Under the ADP test, if the HCE average deferral rate is 8%, what is the maximum allowable HCE ADP under the 1.25× test?
Answer: 10%
Under the 1.25× test, the HCE ADP cannot exceed 1.25 times the NHCE ADP; if HCE ADP is 8%, the NHCE ADP must be at least 6.4%, making 8% allowable when NHCEs average at least 6.4%—but stated differently, if NHCEs average 8%, HCEs can defer up to 10%.
A plan sponsor wants to exclude part-time employees working fewer than 1,000 hours per year from plan participation. This is:
Answer: Permissible under the minimum coverage rules
ERISA permits plans to require employees to complete 1,000 hours of service in a 12-month period before becoming eligible to participate.
Which of the following plan types is exempt from PBGC insurance coverage?
Answer: Defined contribution plan
Defined contribution plans are exempt from PBGC insurance because account balances are always funded by actual assets with no guaranteed benefit promise.
In a target benefit plan, investment risk is borne by:
Answer: The employee/participant
A target benefit plan is a type of defined contribution plan where the employer contributes based on actuarial targets, but investment risk falls on the participant.