CPC Qualified Plan Compliance & Nondiscrimination Testing 1 — Questions and Answers
Question 1: Under IRC Section 410(a), what is the maximum age and service requirement a qualified retirement plan may impose before allowing an employee to participate?
- Age 25 with 1 year of service
- Age 21 with 1 year of service (Correct answer)
- Age 21 with 2 years of service
- Age 18 with 6 months of service
Correct answer: Age 21 with 1 year of service
IRC 410(a) permits plans to require employees to be at least age 21 and complete 1 year of service (1,000 hours) before becoming eligible to participate.
Question 2: Which two alternative tests may a qualified plan satisfy to meet the IRC Section 410(b) minimum coverage requirements?
- ADP test or ACP test
- Ratio percentage test or average benefit test (Correct answer)
- Top-heavy test or minimum participation test
- Safe harbor test or benefit parity test
Correct answer: Ratio percentage test or average benefit test
Under IRC 410(b), a plan must satisfy either the ratio percentage test or the average benefit test to demonstrate it does not discriminate in favor of highly compensated employees.
Question 3: Under the ratio percentage test for IRC Section 410(b) coverage, the percentage of NHCEs benefiting must be at least what fraction of the percentage of HCEs benefiting?
- 50%
- 60%
- 70% (Correct answer)
- 80%
Correct answer: 70%
The ratio percentage test requires that the NHCE benefit percentage equal at least 70% of the HCE benefit percentage.
Question 4: For the 2024 plan year, an employee is classified as a highly compensated employee (HCE) based on compensation from the employer that exceeded what threshold in the prior year?
- $130,000
- $150,000 (Correct answer)
- $160,000
- $175,000
Correct answer: $150,000
For 2024, an employee is an HCE if their 2023 compensation exceeded $150,000, or if they were a 5% owner at any time during the current or prior plan year.
Question 5: Which of the following employees may generally be excluded from coverage testing under IRC Section 410(b)?
- Part-time employees completing more than 500 hours of service
- Employees covered by a collective bargaining agreement where retirement benefits were subject to good-faith bargaining (Correct answer)
- Employees who are age 18 but have not yet reached age 21
- All employees with less than 2 years of service regardless of hours worked
Correct answer: Employees covered by a collective bargaining agreement where retirement benefits were subject to good-faith bargaining
IRC 410(b)(3)(A) permits plans to exclude employees covered by a collective bargaining agreement where retirement benefits were a subject of good-faith bargaining.
Question 6: The average benefit test under IRC Section 410(b) consists of two prongs. Which of the following correctly identifies both prongs?
- Minimum participation count and HCE/NHCE benefit ratio
- Nondiscriminatory classification and average benefit percentage test (Correct answer)
- Ratio percentage and safe harbor comparison
- Coverage ratio and allocation formula nondiscrimination
Correct answer: Nondiscriminatory classification and average benefit percentage test
The average benefit test requires (1) a nondiscriminatory classification of employees and (2) that the average benefit percentage for NHCEs is at least 70% of the average benefit percentage for HCEs.
Question 7: Under the permissive aggregation rules for IRC Section 410(b), when may an employer combine two separate qualified plans for coverage testing purposes?
- Only when both plans are defined contribution plans covering the same employees
- When the aggregated plan would satisfy the applicable coverage tests as if it were a single plan (Correct answer)
- Only when each plan individually passes the ratio percentage test
- When both plans have identical allocation or benefit formulas
Correct answer: When the aggregated plan would satisfy the applicable coverage tests as if it were a single plan
Permissive aggregation allows an employer to treat two plans as one for coverage testing, provided the combined plan would independently satisfy the applicable coverage requirements.
CPC Qualified Plan Compliance & Nondiscrimination Testing 1
Under IRC Section 410(a), what is the maximum age and service requirement a qualified retirement plan may impose before allowing an employee to participate?