CER common mistakes
CER · Understand the traps and how to avoid them.
Treating the ACA 90-day waiting period limit as a maximum eligibility waiting period for all plan purposes, and applying it to part-time or variable-hour employees without checking the 30-hour full-time threshold and measurement/administrative periods.
Candidates memorize '90 days' as a standalone number and conflate the waiting-period rule (which limits how long an otherwise-eligible employee can be required to wait) with the employer shared-responsibility full-time determination rules, which involve look-back measurement periods that can run up to 12 months.
What to do instead
Separate the two rules in your notes: (1) waiting period cannot exceed 90 days after the employee meets the plan's substantive eligibility conditions; (2) full-time status under shared responsibility is determined using 30 hours/week or 130 hours/month, with optional look-back measurement periods and an administrative period. Practice fact patterns where a variable-hour employee is hired mid-year and trace both rules independently.
Applying COBRA continuation coverage to all group health plans and all employers without filtering for small-employer exception, and miscalculating the maximum continuation period for disability extensions or second qualifying events.
Candidates learn the 18-month general rule and the 102% premium but forget the small-employer exemption (fewer than 20 employees in the prior year), the 29-month disability extension, and the special rules for second qualifying events that can extend coverage to 36 months.
What to do instead
Build a decision tree: count employees (20 or more in the prior calendar year on a typical business day) → identify qualifying event → assign maximum period (18, 29, or 36 months) → apply premium limit (102% generally, 150% for the disability extension). Drill scenarios involving divorce after retirement and a second qualifying event.
Confusing HIPAA portability and nondiscrimination rules with ACA market reform rules, and misapplying the HIPAA special enrollment triggers (marriage, birth, adoption, loss of other coverage) to situations that do not qualify.
Both frameworks regulate group health plans, and candidates blur the source of a given requirement. They also forget that special enrollment requires a request within 30 days (or 60 days for ACA exchange special enrollment) and that loss of other coverage must involve loss of eligibility, not voluntary termination.
What to do instead
Create a two-column table: HIPAA (portability, creditable coverage, special enrollment, nondiscrimination, privacy) versus ACA (market reforms, shared responsibility, waiting periods, reporting). For each special enrollment event, note the triggering event, the notice deadline, and whether voluntary loss of coverage disqualifies the request.
Miscalculating the top-heavy minimum contribution or benefit by using the wrong definition of key employee or by ignoring the compensation ratio test, and confusing top-heavy vesting schedules with statutory vesting schedules.
Top-heavy status depends on a two-part key employee definition (officers, 5% owners, 1% owners with compensation above a threshold) and a 60% account balance or accrued benefit test, and candidates often substitute the ADP/ACP or coverage test mechanics for the top-heavy test.
What to do instead
Memorize the key employee categories with their dollar thresholds and the 60% top-heavy ratio, then practice computing the ratio from a participant census. Separately list top-heavy minimums (3% of compensation for defined contribution, 2% of compensation per year of service up to 20% for defined benefit) and the top-heavy vesting schedules (3-year cliff, 6-year graded).
Applying the ADP or ACP test to the wrong employee group or using the wrong compensation definition, and failing to apply the safe harbor corrections (refunds, QNECs, recharacterization) in the correct sequence.
Candidates conflate highly compensated employee determination (5% owner or compensation above the prior-year threshold) with the testing mechanics, and they forget that ADP testing uses prior-year compensation and that refunds must be made within 2½ months after the plan year end to avoid excise tax.
What to do instead
Write out the HCE definition and the compensation cap separately, then run a sample ADP test with a small census. Practice the correction hierarchy: distribute excess contributions as refunds, apply QNECs/QMACs if the plan permits, and compute the 10% excise tax on late refunds.
Confusing the 402(g) elective deferral limit with the 415(c) annual additions limit and the 401(a)(17) compensation limit, and applying catch-up contributions before the 415(c) limit is tested.
All three limits interact, and candidates apply them in the wrong order or treat catch-up contributions as counting toward the 415(c) annual additions limit. They also forget that the 415(c) limit applies per employer (or controlled group), not per plan.
What to do instead
Memorize the order of testing: apply 402(g) to elective deferrals, apply 415(c) to total annual additions (excluding catch-up), then apply the compensation limit to the compensation used in the calculation. Work a numeric example with an over-50 participant contributing the maximum plus catch-up and confirm which limit binds first.
Miscalculating minimum required distributions by using the wrong life expectancy table, failing to apply the required beginning date correctly, and ignoring the SECURE Act changes to the age 72 threshold and the 10-year rule for designated beneficiaries.
The SECURE Act and SECURE 2.0 changed the required beginning date, the beneficiary payout rules, and the penalty for missed distributions, and candidates rely on pre-2020 memorized rules or the wrong uniform lifetime table.
What to do instead
Build a timeline: required beginning date is April 1 of the year after the participant reaches the applicable age (72, or 73 for those reaching 72 after 2022). List the three life expectancy tables and when each applies. Practice the 10-year rule for non-eligible designated beneficiaries versus the life expectancy rule for eligible designated beneficiaries, and compute the excise tax on a missed distribution.
Treating the funding standards for defined benefit plans as identical to defined contribution contribution limits, and misapplying the minimum funding requirement, funding target, and excise tax on accumulated funding deficiencies.
Defined benefit funding involves actuarial assumptions, the funding target percentage, and quarterly contributions that have no analogue in defined contribution plans, and candidates import DC concepts such as the 415(c) annual additions limit into DB funding questions.
What to do instead
Create a comparison chart: DC (annual additions limit, allocation formula, no funding standard) versus DB (minimum required contribution, funding target, at-risk rules, quarterly contributions, excise tax on deficiency). Work a problem computing the minimum required contribution from a funding target and plan assets.
Confusing nonqualified deferred compensation rules under 409A with qualified plan rules, and failing to identify the six-month delay for specified employees and the prohibition on acceleration of benefits.
Candidates apply qualified plan distribution rules (loans, hardship, in-service) to nonqualified plans and forget that 409A governs timing of elections, permissible distribution events, and the specified-employee six-month delay for public companies.
What to do instead
List the six permissible 409A distribution events and the election timing rules (initial election before the year of service, subsequent election at least 12 months before payment and deferring at least 5 years). Practice identifying a 409A violation in a fact pattern involving a change in control or a separation from service.
Miscalculating the taxation of stock options and restricted stock by applying the wrong tax treatment to incentive stock options versus nonqualified options, and ignoring the AMT preference and the holding period requirements for ISO disqualifying dispositions.
Candidates treat all equity awards as ordinary income at grant or exercise, and they forget that ISOs require a holding period (2 years from grant, 1 year from exercise) and that the bargain element is an AMT adjustment item.
What to do instead
Build a matrix: NSO (ordinary income at exercise, capital gain on later sale), ISO (no regular tax at exercise, AMT preference, qualifying disposition yields capital gain), restricted stock (Section 83(b) election timing), and RSUs (ordinary income at vesting). Work a numeric example comparing NSO and ISO after-tax outcomes with and without a disqualifying disposition.