CRPC Employer-Sponsored Retirement Plans 2 — Questions and Answers
Question 1: A 401(k) plan must satisfy the ADP test to ensure nondiscrimination. What does ADP stand for?
- Actual Deferral Percentage (Correct answer)
- Annual Defined Payroll
- Adjusted Deferral Provision
- Average Distribution Period
Correct answer: Actual Deferral Percentage
ADP stands for Actual Deferral Percentage, which compares the average deferral rates of HCEs to NHCEs.
Question 2: Which type of employer-sponsored plan requires the employer to make contributions regardless of company profitability?
- Profit-sharing plan
- Defined benefit pension plan
- Stock bonus plan
- Money purchase pension plan (Correct answer)
Correct answer: Money purchase pension plan
Money purchase pension plans require fixed, mandatory employer contributions regardless of profits, unlike profit-sharing plans.
Question 3: Under ERISA, what is the maximum number of years an employer can require for cliff vesting in a defined contribution plan?
- 2 years
- 3 years (Correct answer)
- 5 years
- 7 years
Correct answer: 3 years
ERISA requires 100% cliff vesting no later than 3 years of service for defined contribution plans.
Question 4: An employer sponsors a SIMPLE IRA. In 2024, what is the maximum employee salary deferral contribution?
- $7,000
- $16,000 (Correct answer)
- $23,000
- $69,000
Correct answer: $16,000
The 2024 SIMPLE IRA employee deferral limit is $16,000, with a $3,500 catch-up for those 50 and older.
Question 5: A top-heavy plan must provide a minimum employer contribution for non-key employees. What is that minimum as a percentage of compensation?
- 1%
- 2%
- 3% (Correct answer)
- 5%
Correct answer: 3%
Top-heavy plans must provide at least a 3% minimum employer contribution for non-key employees.
Question 6: Which of the following best describes a 403(b) plan?
- A defined benefit plan for federal government employees
- A tax-sheltered annuity plan for employees of public schools and nonprofits (Correct answer)
- A profit-sharing plan for small businesses with fewer than 100 employees
- A pension plan for self-employed individuals
Correct answer: A tax-sheltered annuity plan for employees of public schools and nonprofits
403(b) plans are tax-sheltered annuity plans available to employees of public schools, hospitals, and 501(c)(3) organizations.
Question 7: What is the primary purpose of the PBGC (Pension Benefit Guaranty Corporation)?
- To regulate 401(k) plan investment options
- To insure defined benefit pension plan benefits if a plan terminates (Correct answer)
- To monitor compliance of profit-sharing plans
- To administer Social Security disability benefits
Correct answer: To insure defined benefit pension plan benefits if a plan terminates
The PBGC insures participants' defined benefit pension benefits up to certain limits if their plan is terminated.
CRPC Employer-Sponsored Retirement Plans 2
A 401(k) plan must satisfy the ADP test to ensure nondiscrimination.
What does ADP stand for?