Pension Consultant common mistakes
Pension Consultant · Understand the traps and how to avoid them.
Treating the 401(a)(17) compensation limit, the 415(c) annual additions limit, and the 402(g) elective deferral limit as interchangeable, and applying the wrong one to a contribution or a test.
All three are dollar limits that adjust annually and all touch contributions, so candidates memorize the numbers but not the purpose of each: 402(g) caps elective deferrals per person, 415(c) caps total annual additions per person, and 401(a)(17) caps the compensation that may be considered. Because exam questions often supply one limit and ask about another, the candidate grabs the most familiar figure.
What to do instead
Build a one-page limit map organized by what each limit measures and to whom it applies, then drill questions where two limits compete in the same fact pattern (for example, a highly compensated employee deferring the maximum while receiving a profit-sharing allocation). State the limit's function aloud before computing.
Testing coverage and nondiscrimination using the wrong employee group, such as running the ratio percentage test on all employees instead of only those benefiting, or ignoring the aggregation of related employers.
Candidates learn the ratio percentage and average benefit test formulas but skim the definitional layer: who is in the testing group, which employees are excludable, and whether controlled group or affiliated service group rules pull in another entity. The arithmetic is easy once the population is right, so candidates rush to the numbers.
What to do instead
Before any computation, write out the testing group explicitly: all employees of the controlled group, minus statutorily excludable classes, then separate those benefiting from those not. Practice fact patterns that add a second entity or a leased employee and require rebuilding the group from scratch.
Confusing top-heavy minimum contributions with the general nondiscrimination and 415 limits, or forgetting that top-heavy status is measured on a plan-year determination date using account balances or accrued benefits.
Top-heavy rules are a separate compliance layer that overlays the plan, and candidates collapse them into the general contribution rules. The determination date, the look-back year, and the 60 percent threshold are easy to blur, especially when a question mixes key employees with highly compensated employees.
What to do instead
Memorize a distinct top-heavy checklist: determination date, valuation of balances or accrued benefits, the 60 percent test, key employee definition (separate from HCE), and the minimum benefit formulas for defined contribution and defined benefit plans. Then answer at least one question per element without looking at notes.
Applying a vesting schedule or benefit accrual rule without checking whether a partial termination, plan amendment, or protected benefit rule overrides the default schedule.
Candidates learn the statutory vesting schedules as static tables and treat them as always controlling. In practice, amendments cannot cut back accrued benefits, and a partial termination can vest affected participants fully, so the default schedule is only the starting point.
What to do instead
For every vesting question, run a two-step check: what does the plan document say, and does any override apply (411(d)(3) partial termination vesting, 411(a)(10) amendment of schedules, 204(h) notice for benefit reductions)? Practice identifying the trigger event before computing vested percentages.
Answering ERISA fiduciary questions by focusing on the outcome of an investment decision rather than on the procedural prudence of the decision-maker at the time it was made.
Candidates reason from results: if the investment lost money, they assume a breach; if it gained, they assume compliance. The fiduciary standard is conduct-based, judged by the process and the information available when the decision was made, so outcome-driven reasoning produces the wrong answer.
What to do instead
Reframe every fiduciary scenario around four questions: who is a fiduciary for this function, what duties apply (loyalty, prudence, diversification, document compliance), what process was followed, and was there a prohibited transaction. Answer the process question first and treat the outcome as irrelevant unless it evidences a flawed process.
Missing prohibited transaction issues under ERISA section 406 and the corresponding excise tax, particularly party-in-interest dealings such as plan loans to participants or service provider arrangements.
Candidates treat prohibited transactions as a narrow list of obviously improper acts and fail to recognize that many routine plan operations (participant loans, paying a service provider, a sale between the plan and a sponsoring employer) fall within the party-in-interest framework unless an exemption applies.
What to do instead
Memorize the party-in-interest categories and the structure of the statutory and administrative exemptions (for example, the participant loan exemption and the plan asset rules for services). For each scenario, name the party, identify whether it is a party in interest, and then ask whether a specific exemption covers the terms.
Calculating a defined benefit minimum funding contribution without correctly treating the discount rate, the amortization of the funding shortfall, and the effect of the at-risk rules.
Candidates memorize the funding target formula but treat the interest rate and amortization periods as plug-in numbers. The choice of actuarial assumptions, the segment rates, and the at-risk determination change the contribution materially, and exam questions are built to reward knowing which assumption drives the result.
What to do instead
Work the funding calculation as a sequence: determine the funding target using the plan's actuarial assumptions and segment rates, compute the target normal cost, add the shortfall amortization installment, then test the at-risk rules. Practice sensitivity questions that change one assumption and ask for the direction and magnitude of the effect.
Confusing the PBGC guarantee with the plan's full accrued benefit, or misstating which benefits and participants the guarantee covers.
Candidates see PBGC insurance as a blanket backstop and assume it makes participants whole. The guarantee is subject to statutory maximums, phase-ins based on age and service, and exclusions for certain benefit increases, so the guaranteed amount is often less than the accrued benefit.
What to do instead
Learn the guarantee as a set of filters applied to the accrued benefit: the maximum guaranteeable benefit, the age and service phase-in, and the excluded benefit types. Practice computing a guaranteed benefit for a participant with a recent benefit increase and several years of service.
Ignoring the plan document and the written procedures when answering operational compliance questions, and instead answering from general statutory knowledge.
Candidates study the Code and ERISA and treat the plan document as boilerplate. Many exam scenarios turn on the plan's own terms (eligibility, allocation formula, loan procedures, hardship distribution standards), and the correct answer is often what the document requires, not what the statute permits.
What to do instead
Adopt a habit of asking what the plan document provides before applying a statutory default. Review sample plan documents and SPDs for the operational provisions most often tested: eligibility, entry dates, allocation conditions, vesting, loans, and distributions. Note where the document may be more restrictive than the law.
Treating plan design decisions as independent choices, such as selecting a safe harbor 401(k) feature without considering its interaction with top-heavy status, ADP/ACP testing, and the matching contribution requirements.
Candidates learn each design feature in isolation and miss the interdependencies. A safe harbor design exempts the plan from ADP/ACP testing but brings its own notice, vesting, and match requirements, and the interaction with top-heavy rules is a frequent source of error.
What to do instead
Build a design matrix that lists each feature (safe harbor nonelective, safe harbor match, automatic enrollment, new comparability allocation) against its consequences for testing, vesting, top-heavy status, and notice obligations. Answer design questions by tracing the feature through the matrix rather than recalling a single rule.