TREX 401(k) & Defined Benefit Plans 3

Question 1

What is a 'cash balance' plan, and how does it differ from a traditional defined benefit plan?

Accepted Answer

A DB plan that expresses the benefit as a hypothetical individual account balance rather than a monthly annuity

Answer

A cash balance plan is a defined benefit plan where the employer credits each participant's hypothetical account with pay and interest credits, but the employer still bears investment risk.

Question 2

Which IRS test evaluates whether a 401(k) plan's employer matching contributions disproportionately benefit highly compensated employees?

Accepted Answer

ACP test

Answer

The Actual Contribution Percentage (ACP) test compares the average rate of employer matching and after-tax employee contributions for HCEs versus non-HCEs.

Question 3

In a defined benefit plan, 'normal retirement age' is typically defined as the earlier of what?

Accepted Answer

Age 65 or the later of 62 and 5 years of plan participation

Answer

ERISA defines normal retirement age as the later of age 62 or 5 years of plan participation, but most plans set it at age 65.

Question 4

A 401(k) plan is considered 'top-heavy' when more than what percentage of plan assets are held by key employees?

Accepted Answer

60%

Answer

A plan is top-heavy if more than 60% of the aggregate account balances (or present value of accrued benefits) belong to key employees.

Question 5

Which of the following is NOT a permissible in-service distribution event from a 401(k) plan before age 59½ without a 10% early withdrawal penalty?

Accepted Answer

Taking out a plan loan

Answer

Plan loans are not distributions and are not subject to the 10% penalty; the other three are recognized penalty exceptions under the tax code.

(TREX) WorldatWork Total Rewards Certification Practice Test

(TREX) WorldatWork Total Rewards Certification Practice Test

TREX 401(k) & Defined Benefit Plans 3