Retirement Plans: Basic Features, Design, and Administration
Domain overview
This domain tests qualified retirement plan rules: eligibility, vesting, coverage, nondiscrimination, contribution limits, distributions, and administration. It covers DB and DC plans, 401(k), 403(b), 457(b), and ESOPs.
Qualification and design
IRC 401(a) requires exclusive benefit, permanency, nondiscrimination, minimum coverage under 410(b), vesting under 411, and limits under 415. Employer contributions vest under either a 3-year cliff or a 2-to-6-year graded schedule; elective deferrals are always 100% vested. Safe-harbor 401(k) designs avoid ADP/ACP testing. Top-heavy plans require minimum contributions or benefits under IRC 416. Distributions require QJSA/QPSA notices and spousal consent for married participants.
Limits and administration
For 2025, the 402(g) elective deferral limit is $23,500; the age-50 catch-up is $7,500; the 415(c) annual additions limit is $70,000; the compensation limit is $350,000; and the HCE threshold is $160,000. Catch-up contributions are excluded from 402(g) and 415(c). Administration includes SPDs, SMMs, Form 5500, ERISA bonding, fiduciary oversight, and correction through EPCRS.
Worked example
A 55-year-old earns $200,000 and defers $23,500 plus a $7,500 catch-up. The employer adds $50,000 in profit sharing. Annual additions are $23,500 + $50,000 = $73,500, because the catch-up is excluded from 415(c). That exceeds the $70,000 limit by $3,500, which must be corrected. The catch-up itself does not count toward the 415(c) limit.
Traps
Elective deferrals are immediately vested; forfeitures cannot be used to fund deferrals. Hardship distributions are limited to safe-harbor needs and cannot exceed the amount necessary; they are taxable and may suspend deferrals. Do not confuse the 402(g) limit with the 415(c) limit. Roth 401(k) deferrals still count toward 402(g).