Qualified Plan Design and Compliance: Coverage, Nondiscrimination, and Limits
The compliance skeleton
A qualified plan earns its tax benefits by satisfying statutory requirements. The core tests a candidate must know: coverage under the minimum coverage rules, the actual deferral percentage test for elective deferrals, the actual contribution percentage test for matching and after-tax contributions, the top-heavy rules, and the annual limits on contributions, benefits, and compensation.
Design levers
Design questions ask you to choose features that satisfy both the employer's goals and the rules: eligibility waiting periods, entry dates, vesting schedules, allocation formulas (integrated, age-weighted, new-comparability), safe harbor 401(k) designs that avoid ADP/ACP testing, and matching formulas. Know the trade-offs - safe harbor status buys testing relief but requires immediate vesting on those contributions and mandatory notices.
Limits and testing mechanics
Be comfortable with the mechanics rather than memorizing numbers: the compensation limit caps the pay used for allocations; the annual additions limit caps total contributions per participant; the benefit limit caps defined benefit accruals. Nondiscrimination testing compares highly compensated employees to non-highly compensated employees, and corrections generally require returning excess amounts or making corrective contributions.
Traps
Questions love to mix up which test applies to which contribution type, or to apply top-heavy vesting to a plan that already has faster vesting. Another trap: assuming a safe harbor plan is exempt from coverage or top-heavy rules - it is not automatically.
Worked example
If a plan fails the ADP test, the correction is not to amend the plan retroactively; the employer returns excess deferrals (with allocable earnings) to highly compensated employees or makes qualified nonelective contributions. Identify the failing test, then the permitted correction.