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Question 1Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Under ERISA, which of the following makes an individual a fiduciary with respect to a retirement plan?

  1. Performing clerical work for the plan at the direction of a fiduciary
  2. Being named as a participant in the plan document
  3. Serving as a nondiscretionary recordkeeper for the plan
  4. Exercising discretionary authority over the management of the plan Correct answer.

Explanation

ERISA §3(21)(A) defines fiduciary status functionally: a person becomes a fiduciary by exercising discretionary authority or control over plan management or plan assets, by rendering investment advice for a fee, or by having discretionary responsibility for plan administration. Titles and job descriptions are not controlling; the functions performed are.

Question 2Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What does the IRC §402(g) limit cap for a participant in a 401(k) plan?

  1. Compensation eligible for plan purposes
  2. Total annual additions from all employer and employee sources
  3. Elective deferrals from all plans of unrelated employers Correct answer.
  4. Employer matching contributions only

Explanation

Section 402(g) limits the amount of elective deferrals a participant may exclude from gross income in a calendar year, and the limit is applied by aggregating deferrals across all plans of unrelated employers. Separate limits under §415(c) and §401(a)(17) govern total annual additions and countable compensation.

Question 3Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which amounts count toward the IRC §415(c) annual additions limit for a defined contribution plan?

  1. Elective deferrals, but not employer contributions
  2. Elective deferrals, employer contributions, and forfeitures Correct answer.
  3. Employer contributions, but not elective deferrals
  4. Only employer matching contributions and nonelective contributions

Explanation

Annual additions under §415(c) include elective deferrals (other than catch-up contributions), all employer contributions, employee after-tax contributions, and forfeitures allocated to a participant's account. The limit is the lesser of a dollar amount or 100% of compensation.

Question 4Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

The IRC §401(a)(17) limit applies to which item?

  1. The compensation that may be taken into account under the plan Correct answer.
  2. The maximum loan amount a participant may take
  3. The maximum elective deferral a participant may make
  4. The maximum annual benefit payable from a defined benefit plan

Explanation

Section 401(a)(17) caps the amount of compensation that a qualified plan may take into account for any participant in a plan year, and the cap is indexed annually. It is distinct from the deferral limit, the benefit limit, and the loan rules.

Question 5Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

A plan is top-heavy for the plan year and uses the defined contribution minimum benefit. What minimum contribution must the employer make for each non-key employee?

  1. 7.5% of compensation
  2. 1.5% of compensation
  3. 5% of compensation
  4. 3% of compensation Correct answer.

Explanation

A top-heavy defined contribution plan must provide non-key employees a minimum contribution of 3% of compensation, or the highest contribution rate provided to any key employee if that rate is lower. This minimum satisfies the top-heavy requirement independently of the ADP or ACP tests.

Question 6Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which test compares the average deferral percentage of highly compensated employees with that of non-highly compensated employees?

  1. The ACP test under §401(m)
  2. The general test under §401(a)(4)
  3. The ratio percentage test under §410(b)
  4. The ADP test under §401(k)(3) Correct answer.

Explanation

The actual deferral percentage test under §401(k)(3) compares the average rate of elective deferrals of highly compensated employees to that of non-highly compensated employees. A plan that fails may correct through refunds, recharacterization, or a qualified nonelective contribution.

Question 7Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

The IRC §401(m) actual contribution percentage test measures which type of contribution?

  1. Nonelective employer contributions only
  2. Rollover contributions
  3. Elective deferrals only
  4. Employee and matching contributions Correct answer.

Explanation

Section 401(m) applies the ACP test to employee contributions and employer matching contributions, comparing the average rates for highly and non-highly compensated employees. Elective deferrals are instead measured by the ADP test.

Question 8Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Under the ratio percentage test of §410(b), what minimum percentage must a plan achieve?

  1. 70% Correct answer.
  2. 60%
  3. 50%
  4. 40%

Explanation

The ratio percentage test is satisfied when the percentage of non-highly compensated employees benefiting under the plan is at least 70% of the percentage of highly compensated employees benefiting. A plan failing this test may instead satisfy §410(b) through the average benefit test.

Question 9Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What is the slowest vesting schedule permitted for employer matching contributions in a 401(k) plan?

  1. A three-year cliff schedule or a six-year graded schedule Correct answer.
  2. A five-year cliff schedule for all employer contributions
  3. A seven-year graded schedule
  4. Immediate 100% vesting only

Explanation

Matching contributions must vest at least as rapidly as either a three-year cliff or a six-year graded schedule (20% per year beginning in the second year). Employer nonelective contributions may use a three-year cliff or a two-to-six-year graded schedule.

Question 10Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Under SECURE 2.0, at what account balance may a plan force a distribution of a terminated vested participant's account without the participant's consent?

  1. $5,000
  2. $10,000
  3. $1,000
  4. $7,000 Correct answer.

Explanation

SECURE 2.0 increased the mandatory distribution cash-out limit from $5,000 to $7,000, effective for distributions made after December 31, 2023. Above that amount, the plan generally needs the participant's consent unless another exception applies.

Question 11Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

For a participant born in 1960, at what age must required minimum distributions generally begin under SECURE 2.0?

  1. 72
  2. 75 Correct answer.
  3. 70½
  4. 73

Explanation

SECURE 2.0 sets the applicable age at 73 for individuals who attain age 72 after 2022 and age 73 before 2033, and at 75 for individuals who attain age 74 after 2032. Someone born in 1960 reaches age 74 in 2034, so the applicable age is 75.

Question 12Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which contribution satisfies the basic matching formula for a safe harbor 401(k) plan?

  1. 100% of the first 3% plus 50% of deferrals from 3% to 5% Correct answer.
  2. 25% of deferrals up to 4% of compensation
  3. 100% of deferrals up to 6% of compensation
  4. 50% of deferrals up to 8% of compensation, with no cap on the total match

Explanation

The basic safe harbor matching formula is 100% of elective deferrals up to 3% of compensation plus 50% of deferrals between 3% and 5%, for a maximum match of 4% of compensation. Alternatively, a plan may use a 3% nonelective contribution for all eligible non-highly compensated employees.

Question 13Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What protection does ERISA §404(c) provide to a plan fiduciary?

  1. A safe harbor from the §410(b) coverage requirements
  2. Relief from liability for losses from participant investment directions Correct answer.
  3. Complete immunity from every claim alleging a breach of the fiduciary duty of prudence
  4. An exemption from the prohibited transaction rules for participant loans

Explanation

When a plan complies with §404(c), fiduciaries are relieved of liability for losses that result from a participant's exercise of control over the investments in their own account. The relief does not extend to the fiduciary's selection and monitoring of the investment menu or to the plan's compliance with other ERISA duties.

Question 14Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which of the following is a prohibited transaction under ERISA §406 and IRC §4975?

  1. Purchasing a publicly traded mutual fund through a broker
  2. Lending plan assets to the plan sponsor without an exemption Correct answer.
  3. Reallocating forfeitures to participant accounts
  4. Charging participants a fee for processing a hardship withdrawal

Explanation

A loan of plan assets to a party in interest, including the plan sponsor, is a prohibited transaction unless a statutory or administrative exemption applies. Similar rules bar sales, leases, and extensions of credit between a plan and a party in interest.

Question 15Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What distinguishes an ERISA §3(38) investment manager from a §3(21) investment adviser?

  1. The §3(38) manager has discretion and fiduciary liability for managed assets Correct answer.
  2. The §3(21) adviser retains final authority over the plan's investment lineup
  3. The §3(38) manager must be a bank, insurer, or broker-dealer
  4. The §3(21) adviser must be registered with the Department of Labor

Explanation

An investment manager under §3(38) must acknowledge fiduciary status in writing, must be a bank, insurance company, or registered investment adviser, and has discretionary authority over the assets it manages, taking on liability for those investment decisions. A §3(21) adviser provides advice but the named fiduciary typically retains final decision-making authority.

Question 16Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Within what period must a plan administrator furnish the §402(f) rollover notice to a participant receiving an eligible rollover distribution?

  1. At least 7 days before the distribution
  2. No less than 30 days and no more than 180 days before the distribution Correct answer.
  3. At least 60 days before the distribution
  4. At least 90 days before the distribution

Explanation

The written explanation of rollover rules must be provided no fewer than 30 days and no more than 180 days before the distribution. The participant also has at least 30 days after receiving the notice to make a direct rollover election.

Question 17Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What must a plan do to obtain the fiduciary relief available for a qualified default investment alternative under ERISA §404(c)(5)?

  1. Give participants an initial notice and annual notices describing the QDIA Correct answer.
  2. Obtain written consent from each participant before any default investment is made
  3. Guarantee the participant's account against investment loss
  4. Restrict the QDIA to a stable value or money market fund

Explanation

Relief for a QDIA requires that participants receive an initial notice at least 30 days before the first investment and an annual notice thereafter, along with the ability to direct investments out of the QDIA without penalty. The QDIA must be a permitted investment type such as a target-date fund, balanced fund, or managed account.

Question 18Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Two corporations are members of a parent-subsidiary controlled group. For purposes of a qualified plan, how are they treated?

  1. As unrelated employers unless they file a consolidated Form 5500
  2. A single employer for coverage and nondiscrimination testing Correct answer.
  3. As a single employer only for the §402(g) deferral limit
  4. As separate employers so long as each files its own tax return

Explanation

Under §414(b) and §414(c), trades or businesses under common control are treated as a single employer for plan qualification purposes. That aggregation affects coverage, nondiscrimination testing, contribution and benefit limits, and top-heavy status; a parallel rule for affiliated service groups appears in §414(m).

Question 19Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which of the following distributions from a 401(k) plan avoids the 10% additional tax under §72(t)?

  1. A distribution made on account of the participant's disability Correct answer.
  2. A distribution at age 45 to purchase a first home
  3. A distribution to pay a participant's credit card debt
  4. A distribution to fund a child's college tuition from a 401(k) plan

Explanation

Section 72(t) imposes an additional 10% tax on early distributions, but several exceptions apply, including total and permanent disability, separation from service at age 55 or later, qualified domestic relations orders, and substantially equal periodic payments. The disability exception applies to qualified plans as well as IRAs.

Question 20Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What fidelity bond coverage does ERISA §412 require for a plan?

  1. A flat $10,000 regardless of plan size
  2. 5% of plan assets, with a $100,000 cap
  3. 10% of plan assets, with a $500,000 cap Correct answer.
  4. 25% of plan assets, with a $1,000,000 cap

Explanation

ERISA §412 requires a bond of at least 10% of the amount of funds handled, with a minimum of $1,000 and a maximum of $500,000; the maximum rises to $1,000,000 for a plan that holds employer securities. The bond protects the plan against fraud or dishonesty by persons handling plan funds.

Question 21Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

ERISA's anti-alienation provision generally prohibits which of the following?

  1. QDROs dividing a participant's benefit in a divorce
  2. Assignment or garnishment of plan benefits by creditors Correct answer.
  3. Voluntary rollovers to another employer's plan
  4. Participant loans secured by the account balance

Explanation

Section 401(a)(13) and ERISA §206(d) require that plan benefits not be assigned or alienated, which protects benefits from most creditor claims. Statutory exceptions exist, notably qualified domestic relations orders, certain tax levies, and plan loans.

Question 22Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which fiduciary duty requires a fiduciary to act with the care, skill, prudence, and diligence that a knowledgeable person acting in a like capacity would use?

  1. The duty of loyalty
  2. The duty of prudence Correct answer.
  3. The duty to diversify investments
  4. The duty to follow plan documents

Explanation

ERISA §404(a)(1)(B) sets the prudence standard, often described as the prudent expert rule because it measures conduct against a person familiar with such matters. The duty of loyalty, diversification, and adherence to plan documents appear in separate subsections.

Question 23Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Under the §408(b)(2) regulations, which party must furnish disclosures of compensation and services to the plan's responsible plan fiduciary?

  1. Covered service providers, including recordkeepers Correct answer.
  2. The Department of Labor, through its Employee Benefits Security Administration
  3. Each plan participant
  4. The plan's enrolled actuary

Explanation

The §408(b)(2) regulations require covered service providers, such as recordkeepers, investment advisers, and consultants, to disclose their services and direct and indirect compensation so the responsible plan fiduciary can assess reasonableness. Without the disclosure, the arrangement may be a prohibited transaction.

Question 24Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Which employee is considered highly compensated under IRC §414(q)?

  1. Any employee with at least five years of service
  2. Any employee earning more than the Social Security wage base
  3. A more-than-5% owner in the current or preceding year Correct answer.
  4. Any employee who is a key employee under §416(i)

Explanation

Section 414(q) treats a more-than-5% owner at any time during the current or preceding year as highly compensated, and also includes employees with compensation above an indexed threshold who are in the top-paid group if the employer so elects. Key employee status under §416(i) is a separate concept used for top-heavy testing.

Question 25Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Beginning in 2025, which plans must include an automatic enrollment feature under SECURE 2.0?

  1. All 401(k) plans, regardless of the year the plan was first established
  2. Only safe harbor 401(k) plans
  3. Newly created 401(k) plans, with exceptions for small businesses Correct answer.
  4. Only plans maintained by employers with more than 5,000 employees

Explanation

SECURE 2.0 requires 401(k) and 403(b) plans established on or after December 29, 2022 to automatically enroll eligible employees at a rate between 3% and 10%, increasing annually until reaching at least 10% and no more than 15%. Exceptions apply to small employers with 10 or fewer employees, businesses in existence less than three years, and church and governmental plans.

Question 26Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

A profit sharing plan is top-heavy for the current plan year and makes no matching contributions. What minimum employer contribution must the plan credit for that year on behalf of each non-key employee who is employed on the last day of the plan year?

  1. 5% of compensation
  2. 7.5% of compensation
  3. 1% of compensation
  4. 3% of compensation Correct answer.

Explanation

IRC §416(c)(2) requires a top-heavy defined contribution plan to provide each non-key employee a minimum employer contribution of 3% of compensation for the plan year. Matching contributions may be counted toward that minimum, and key employees are excluded from the requirement.

Question 27Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

What limits the total annual additions that may be credited to a participant's account in a defined contribution plan for a given plan year?

  1. The lesser of the §402(g) elective deferral limit or 25% of the participant's compensation
  2. One hundred percent of the participant's compensation, without regard to any dollar cap
  3. The §415(c) dollar limit for the year, without regard to the participant's compensation
  4. The lesser of the §415(c) dollar limit for the year or 100% of the participant's compensation Correct answer.

Explanation

IRC §415(c) caps annual additions (elective deferrals, employer contributions, and forfeitures) at the lesser of a dollar amount indexed annually or 100% of the participant's compensation. The §402(g) limit and the 25% deduction limit govern different questions and do not define annual additions.

Question 28Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

A defined benefit plan sponsor adopts an amendment eliminating a subsidized early retirement benefit for participants who have already met the plan's age and service conditions for that subsidy. How is the amendment treated under IRC §411(d)(6) and ERISA §204(g)?

  1. It is permitted because early retirement subsidies are discretionary benefits that are never protected
  2. It is prohibited because the subsidy is a protected accrued benefit that cannot be reduced by amendment Correct answer.
  3. It is prohibited only if the plan is top-heavy for the plan year of the amendment
  4. It is permitted if the amendment is adopted before the plan's next actuarial valuation date

Explanation

The anti-cutback rules of IRC §411(d)(6) and ERISA §204(g) protect accrued benefits, which include early retirement benefits and retirement-type subsidies, from reduction or elimination by plan amendment. Once participants have satisfied the conditions for the subsidy, the amendment cannot take it away, regardless of funding or valuation timing.

Question 29Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Absent fraud or concealment, ERISA §413 imposes which general deadline for bringing a civil action for breach of fiduciary duty?

  1. Three years after the date of the last action constituting part of the breach or violation
  2. Six years after the date of the last action constituting part of the breach or violation Correct answer.
  3. One year after the participant receives a summary annual report describing the breach
  4. Ten years after the close of the plan year in which the breach occurred

Explanation

ERISA §413(a)(2) sets a six-year limitations period running from the date of the last action constituting part of the breach, unless fraud or concealment applies. A shorter three-year period runs from the earliest date the plaintiff had actual knowledge of the breach.

Question 30Retirement plan regulatory framework, ERISA, and the Internal Revenue Code

Under ERISA §405(a), when may one plan fiduciary be held liable for a breach committed by another plan fiduciary?

  1. Only when the fiduciary personally executed the transaction that caused the loss
  2. Only when the plan document expressly imposes joint and several responsibility on co-fiduciaries
  3. When the fiduciary knowingly participates in, conceals, or fails to make reasonable efforts to remedy the other fiduciary's breach Correct answer.
  4. Only after the breaching fiduciary has become insolvent and the plan has documented a loss

Explanation

ERISA §405(a) makes a fiduciary liable for another fiduciary's breach when it knowingly participates in or conceals the breach, fails to discharge its own duties in a way that enables the breach, or learns of the breach and does not make reasonable efforts to remedy it. The duty is statutory and does not depend on plan language or on the other fiduciary's solvency.

Question 31Plan design, eligibility, and coverage requirements

What is the maximum age a qualified plan may require an employee to reach before becoming eligible to participate?

  1. There is no maximum age
  2. Age 25
  3. Age 18
  4. Age 21 Correct answer.

Explanation

A qualified plan may not impose an eligibility age higher than 21. A plan may use a lower age, such as 18, but age 21 is the oldest permitted requirement.

Question 32Plan design, eligibility, and coverage requirements

What is the maximum service requirement a 401(k) plan may impose on employees before they are eligible to make elective deferrals?

  1. Three years of service
  2. Two years of service
  3. Six months of service
  4. One year of service (1,000 hours) Correct answer.

Explanation

A 401(k) plan may require no more than one year of service, generally measured as a 12-month period in which the employee completes at least 1,000 hours. A two-year requirement is permitted only for certain employer contributions, not for elective deferrals.

Question 33Plan design, eligibility, and coverage requirements

A plan sponsor wants to require two years of service for eligibility for employer nonelective contributions. What must the plan provide for those contributions?

  1. A minimum age of 25
  2. Immediate 100% vesting Correct answer.
  3. A three-year cliff vesting schedule
  4. Annual entry dates

Explanation

A plan may impose a two-year service requirement for employer nonelective contributions only if employees are fully vested immediately in those contributions. Elective deferrals are still limited to a one-year service requirement.

Question 34Plan design, eligibility, and coverage requirements

How frequently must a 401(k) plan permit eligible employees to enter the plan to make elective deferrals?

  1. At least quarterly
  2. At least annually
  3. At least monthly
  4. At least semiannually Correct answer.

Explanation

A 401(k) plan must provide entry dates at least semiannually for eligible employees, commonly the first day of the plan year and the first day of the seventh month. More frequent entry dates are permitted.

Question 35Plan design, eligibility, and coverage requirements

Under the ratio percentage test, what minimum percentage of the non-highly compensated employee coverage rate relative to the highly compensated employee coverage rate must a plan satisfy?

  1. 80%
  2. 50%
  3. 70% Correct answer.
  4. 60%

Explanation

The ratio percentage test is satisfied if the plan covers non-highly compensated employees at a rate that is at least 70% of the rate for highly compensated employees. A plan that fails this test may still pass the average benefit test.

Question 36Plan design, eligibility, and coverage requirements

Which two tests make up the average benefit test for coverage under Section 410(b)?

  1. The minimum participation test and the ratio percentage test
  2. The top-heavy ratio test and the gateway test
  3. The nondiscriminatory classification test and the average benefit percentage test Correct answer.
  4. The ratio percentage test and the ADP test

Explanation

The average benefit test consists of the nondiscriminatory classification test and the average benefit percentage test, which must be at least 70%. The ratio percentage test is a separate alternative to the average benefit test.

Question 37Plan design, eligibility, and coverage requirements

Which group may a plan exclude when performing coverage testing under Section 410(b)?

  1. Employees who are age 21 or older
  2. Employees who have completed one year of service
  3. Full-time employees
  4. Nonresident aliens who receive no U.S. source earned income Correct answer.

Explanation

Coverage testing may exclude nonresident aliens who receive no earned income from U.S. sources, along with certain other groups such as union employees and employees who have not met the permitted age and service conditions. Employees who have met the plan's eligibility conditions generally must be included.

Question 38Plan design, eligibility, and coverage requirements

A defined contribution plan is top-heavy when key employees hold more than what percentage of total account balances?

  1. 60% Correct answer.
  2. 40%
  3. 70%
  4. 50%

Explanation

A plan is top-heavy if key employees hold more than 60% of the total account balances under the plan. The 60% threshold is measured as of the determination date.

Question 39Plan design, eligibility, and coverage requirements

What minimum contribution must a top-heavy defined contribution plan generally provide to non-key employees?

  1. 1% of compensation
  2. 5% of compensation
  3. 2% of compensation
  4. 3% of compensation Correct answer.

Explanation

A top-heavy plan generally must provide non-key employees with a minimum contribution of 3% of compensation. The minimum may be reduced if the highest key-employee contribution rate is less than 3%.

Question 40Plan design, eligibility, and coverage requirements

Which individual is a key employee for top-heavy purposes?

  1. An employee who deferred 5% of pay
  2. An employee earning more than the HCE compensation threshold
  3. Any officer of the employer
  4. A 5% owner at any time during the plan year Correct answer.

Explanation

Key employees include 5% owners, 1% owners with compensation above the statutory threshold, officers with compensation above the threshold, and certain top-ten owners. High compensation or a large deferral rate alone does not make an employee a key employee.

Question 41Plan design, eligibility, and coverage requirements

Which employee is a highly compensated employee under the ownership test?

  1. A 5% owner at any time during the current or preceding year Correct answer.
  2. Any employee who is a 1% owner
  3. Any employee who deferred the maximum amount
  4. Any employee who worked 1,000 hours

Explanation

An employee is an HCE if the employee was a 5% owner at any time during the current or preceding year. A 1% owner is not automatically an HCE and must satisfy another HCE test.

Question 42Plan design, eligibility, and coverage requirements

If the non-highly compensated employee ADP is 4%, what is the maximum highly compensated employee ADP under the ADP test?

  1. 5%
  2. 4%
  3. 8%
  4. 6% Correct answer.

Explanation

When the NHCE ADP is between 2% and 8%, the HCE ADP may not exceed the NHCE ADP plus two percentage points. A 4% NHCE ADP therefore permits a maximum HCE ADP of 6%.

Question 43Plan design, eligibility, and coverage requirements

What is the basic safe harbor matching contribution formula for a 401(k) plan?

  1. 50% of the first 6% of compensation
  2. 100% of the first 3% of compensation and 50% of the next 2% Correct answer.
  3. 100% of the first 1%, 50% of the next 2%, and 25% of the next 2%
  4. 100% of the first 4% of compensation

Explanation

The basic safe harbor match is 100% of elective deferrals up to 3% of compensation plus 50% of deferrals between 3% and 5%. The formula in the last option describes the QACA basic match.

Question 44Plan design, eligibility, and coverage requirements

What minimum nonelective contribution satisfies the safe harbor 401(k) design?

  1. 2% of compensation
  2. 1% of compensation
  3. 5% of compensation
  4. 3% of compensation Correct answer.

Explanation

A safe harbor 401(k) plan using the nonelective design must contribute at least 3% of compensation to each eligible non-highly compensated employee. The contribution must be fully vested.

Question 45Plan design, eligibility, and coverage requirements

Which design feature is required for a qualified automatic contribution arrangement (QACA)?

  1. A 1% default deferral with immediate vesting
  2. A 3% default deferral with a two-year cliff vesting schedule Correct answer.
  3. A 6% default deferral with three-year cliff vesting
  4. A 3% default deferral with immediate vesting

Explanation

A QACA must provide a default deferral of at least 3% initially, increasing in later years, and a vesting schedule no slower than two-year cliff. QACA contributions are not immediately vested.

Question 46Plan design, eligibility, and coverage requirements

Which feature is required for an eligible automatic contribution arrangement (EACA)?

  1. A 1% default deferral and annual notice
  2. A 3% default deferral and a 90-day withdrawal window Correct answer.
  3. A 6% default deferral and two-year vesting
  4. A 3% default deferral and immediate vesting

Explanation

An EACA must use a uniform default deferral of at least 3% for the initial period, provide annual notice, and allow employees to withdraw automatic deferrals within 90 days. Immediate vesting is not an EACA requirement.

Question 47Plan design, eligibility, and coverage requirements

What are the maximum vesting schedules permitted for employer contributions in a qualified plan, ignoring safe harbor and QACA exceptions?

  1. Immediate vesting only
  2. Five-year cliff or seven-year graded
  3. Two-year cliff or four-year graded
  4. Three-year cliff or six-year graded Correct answer.

Explanation

Employer contributions may vest no more slowly than a three-year cliff or a six-year graded schedule (2-6). Safe harbor and QACA contributions are subject to separate, faster vesting rules.

Question 48Plan design, eligibility, and coverage requirements

Under the SECURE 2.0 long-term part-time rules for plan years beginning after 2024, when must an employee be allowed to make elective deferrals?

  1. After 500 hours of service in two consecutive years Correct answer.
  2. After 500 hours of service in three consecutive years
  3. After 1,000 hours of service in two consecutive years
  4. After 500 hours of service in one year

Explanation

SECURE 2.0 reduced the long-term part-time eligibility period to two consecutive years of at least 500 hours of service for plan years beginning after 2024. The earlier law used a three-year period.

Question 49Plan design, eligibility, and coverage requirements

How are employees of a controlled group of corporations treated for qualified plan coverage testing?

  1. Each corporation is tested separately without aggregation
  2. Only the parent corporation's employees are tested
  3. Employees of all members are treated as employed by a single employer Correct answer.
  4. Only highly compensated employees are aggregated

Explanation

For coverage and other qualification tests, all employees of a controlled group are treated as employed by a single employer. Each member's employees are aggregated rather than tested separately.

Question 50Plan design, eligibility, and coverage requirements

Which employee group may a plan use for coverage testing under Section 410(b)?

  1. All employees, including union employees and nonresident aliens
  2. Employees who satisfy the plan's eligibility conditions, if those conditions are no more restrictive than age 21 and one year of service Correct answer.
  3. Only employees who are highly compensated
  4. Only employees who are fully vested

Explanation

A plan may test coverage using employees who satisfy its eligibility conditions, but the conditions used for testing cannot be more restrictive than age 21 and one year of service. Certain employees, such as union employees and qualifying nonresident aliens, may be excluded.