CRC Retirement Plan Design 2 — Questions and Answers
Question 1: A company wants to reward long-tenure employees more generously. Which plan design feature best accomplishes this?
- Cliff vesting schedule
- Graded vesting schedule
- Years-of-service benefit formula (Correct answer)
- Integration with Social Security
Correct answer: Years-of-service benefit formula
A years-of-service benefit formula directly ties the benefit amount to length of employment, rewarding long-tenure employees more.
Question 2: Under IRC Section 415, what is the 2024 annual additions limit for a defined contribution plan?
- $23,000
- $46,000
- $69,000 (Correct answer)
- $230,000
Correct answer: $69,000
The IRC Section 415 limit on annual additions to a defined contribution plan is $69,000 for 2024 (or 100% of compensation if less).
Question 3: What is the primary purpose of a top-hat plan?
- Provide retirement benefits to all employees equally
- Defer compensation for a select group of highly compensated or management employees (Correct answer)
- Supplement Social Security for lower-paid workers
- Meet IRS nondiscrimination requirements
Correct answer: Defer compensation for a select group of highly compensated or management employees
A top-hat plan is an unfunded, nonqualified deferred compensation plan maintained for a select group of management or highly compensated employees.
Question 4: Which plan type requires the employer to fund based on actuarial calculations to meet future benefit obligations?
- 401(k) plan
- SEP-IRA
- Defined benefit plan (Correct answer)
- SIMPLE IRA
Correct answer: Defined benefit plan
Defined benefit plans require actuarial calculations to determine the funding needed to meet the promised future benefit obligations.
Question 5: A 'frozen' defined benefit plan means:
- The plan has been terminated and all benefits paid out
- No new participants can enter and/or no additional benefits accrue (Correct answer)
- The plan assets are held in escrow pending a merger
- Participants cannot take distributions until age 65
Correct answer: No new participants can enter and/or no additional benefits accrue
A frozen defined benefit plan stops new benefit accruals and/or new participant entry while existing accrued benefits remain intact.
Question 6: Which of the following best describes a cash balance plan?
- A plan where employees direct their own investments
- A defined benefit plan that expresses benefits as a hypothetical account balance (Correct answer)
- A profit-sharing plan with employer match
- A plan exclusively for self-employed individuals
Correct answer: A defined benefit plan that expresses benefits as a hypothetical account balance
A cash balance plan is a type of defined benefit plan that expresses each participant's benefit as a hypothetical account balance that grows with pay credits and interest credits.
Question 7: The 'gateway' minimum contribution in a new comparability plan is required to:
- Ensure highly compensated employees receive maximum allocations
- Allow the plan to pass nondiscrimination testing under general testing rules (Correct answer)
- Fund the defined benefit plan's unfunded liability
- Meet the PBGC premium requirements
Correct answer: Allow the plan to pass nondiscrimination testing under general testing rules
The gateway minimum contribution (typically 5% of compensation) ensures all non-highly compensated employees receive a baseline allocation so the plan can pass nondiscrimination testing.
CRC Retirement Plan Design 2
A company wants to reward long-tenure employees more generously.
Which plan design feature best accomplishes this?