TREX 401(k) & Defined Benefit Plans 2

Question 1

Under a traditional defined benefit plan, the investment risk is borne by whom?

Accepted Answer

The employer

Answer

In a defined benefit plan, the employer bears all investment risk and is obligated to pay the promised benefit regardless of investment performance.

Question 2

What is the maximum annual addition to a participant's 401(k) account from all sources (employee + employer) in 2024?

Accepted Answer

$69,000

Answer

The 2024 IRC Section 415 limit for total annual additions to a defined contribution plan is $69,000 (or 100% of compensation if less).

Question 3

A 401(k) plan's 'actual deferral percentage' (ADP) test is designed to prevent what?

Accepted Answer

Highly compensated employees from deferring disproportionately more than non-HCEs

Answer

The ADP test ensures that the average deferral rate of highly compensated employees does not exceed the average for non-highly compensated employees by more than a specified threshold.

Question 4

Which defined benefit plan formula bases the retirement benefit on the employee's average salary during the final years of employment?

Accepted Answer

Final-pay formula

Answer

The final-pay formula calculates benefits based on average compensation in the last few years before retirement, which typically represents peak earnings.

Question 5

A 'safe harbor' 401(k) plan avoids ADP/ACP testing by requiring the employer to make what type of contribution?

Accepted Answer

A mandatory nonelective or matching contribution that is immediately 100% vested

Answer

Safe harbor 401(k) plans require either a 3% nonelective contribution for all eligible employees or a specified matching formula, both of which must be immediately fully vested.

(TREX) WorldatWork Total Rewards Certification Practice Test

(TREX) WorldatWork Total Rewards Certification Practice Test

TREX 401(k) & Defined Benefit Plans 2