Dc-1 Chapter 6 Requirements For Coverage

Front 1

Coverage testing must be performed separately for the 401(k) portion, the 401(m)portion and the 401(a) portion of a plan.

Back 1

TRUE

401 k, 401 m, and 401 must be tested separately in regards to coverage

Front 2

A participant who is not benefiting form the profit sharing portion of the plan and who terminates with 500 or fewer hours in the plan year may be excluded from coverage testing.

Back 2

TRUE

they would need to work more then 500 hours.

also, leased employees who are terminated before the end of the plan year, are also excluded in the coverage testing.

Front 3

A participant who receives only a forfeiture allocation is treated as benefiting when testing the profit sharing portion of the plan for coverage under IRC §410(b).

Back 3

TRUE

Front 4

If an HCE irrevocably waives participation, he or she is excluded from coverage testing under IRC §410(b).

Back 4

NO

An irrevocable waiver does not, in itself, make an employee excludable for coverage testing purposes.

Front 5

A plan that benefits only union employees covered by collective bargaining agreements will automatically satisfy the coverage requirements under IRC §410(b).

Back 5

TRUE

plans that benefit only union employees are deemed to automatically satisfy coverage testing.

so do plans with no NHCE in the coverage testing group are also deemed to automatically pass.

Front 6

A plan that benefits only NHCEs will automatically satisfy the coverage requirements under IRC §410(b).

Back 6

TURE

Front 7

A plan must pass the ratio percentage test to retain its qualified plan status under IRC §401(a).

Back 7

NO

A qualified plan may satisfy coverage requirements under IRC §410(b) byeither the ratio percentage test or the average benefit test.

only one is needed to pass

Front 8

Leased employees are considered to be part of the recipient employer’s work forcefor coverage testing purposes.

Back 8

TRUE

but if they term before the end of the plan year, then they would not be included.

Front 9

Employees who are excluded from participating in a plan because they work in Division A, for example, are considered excludable employees when performing the plan’s coverage testing under IRC §410(b).

Back 9

NO

Excludable employees are those who do not satisfy the age and service requirements for a plan, are terminated with 500 or fewer hours and are not benefiting, are union employees or are non resident aliens.

working for a different Division can be included, if they meet above requirement, but they could excluded from being in the coverage test. dont confuse the two.

Front 10

An employer maintaining two qualified plans with the same plan year may aggregate the plans for coverage testing under IRC §410(b).

Back 10

TRUE

Employer may aggregate two qualified plans it maintains for coverage testing. if one of them is not qualified then no.

Front 11

Based on the following information, determine the maximum number of NHCEs who could be excluded from participation and still have the plan satisfy the ratio percentage test of IRC §410(b):

--X Corporation has 46 employees, of which 45 satisfy the plan’s age and service requirements.

---Out of the 45 participants, five are HCEs who benefit under the plan and 40 are NHCEs who benefit under the plan.

--The company wishes to exclude a division from participation in the plan.Excluding this division would exclude one HCE.

A. 1

B. 10

C. 17

D. 22

E. 23

Back 11

C

total EE 46

total benefiting 45

total NHCE 40

total excl 0

total HCE 5

HCE excl 1

not ex HCE/total HCE 4/5 = 80%

not ex NHCE/total NHCE 40/40 = 100%

only need 70% to pass ration %, 70% of 80% = 56%

there is 40 NHCE, what 56% of 40*.56= 23 needed to pass. but the question is, how many NHCE employee can be excluded to pass. since there are 40 and you only need 23 to pass. you subtrack 23 from 40 and you 17. 17 NHCE employees can be excluded. (READ THE QUESTION CAREFULLY)

Front 12

All of the following are excludable employees for coverage testing under IRC§410(b), EXCEPT:

A. Union employees

B. Hourly employees

C. Terminated participants with 500 or fewer hours of service who are notbenefiting

D. Nonresident aliens with no US income

E. Employees who have not satisfied the plan’s age and service requirements

Back 12

B.

Hourly employees may be excluded from the plan, but they are not considered excludable employees for coverage testing under IRC §410(b).

Front 13

Based on the following information, determine the number of employees in the benefiting group for coverage testing under IRC §410(b):

--The plan is a calendar year profit sharing plan.

--The profit sharing contribution for the year is $50,000.

--Participants must be employed on the last day of the plan year to receive an allocation.

--Participants must work 1,000 hours during the plan year to receive an allocation.

total non-excl EE 100

non-excl active EE wrk 1,000 hrs 65

non-excl active EE wrk few 1,000 hrs 10

non-excl EE who term w/ few 500 hrs 20

non-excl EE excld by class 5

A. 65

B. 75

C. 80

D. 85

E. 100

Back 13

A

Only the non excludable active employees working 1,000 or more hours of service satisfied the allocation requirements and are considered benefiting.

employees would need to work more then 1,000 hours that can be included in the coverage test.

Front 14

All of the following plans satisfy coverage testing under IRC §410(b), EXCEPT:

A. Plans that benefit all NHCEs and exclude HCEs

B. Plans that satisfy the ratio percentage test

C. Plans that benefit only collectively bargained employees

D. Plans that benefit only HCEs and exclude NHCEs

E. Plans that benefit 50 percent of the NHCEs and exclude HCEs

Back 14

D

A plan that excludes all of the employer’s NHCEs will not satisfy the minimum coverage requirements. if there is no NHCEs at all, then it would be deemed to satisfy, but excluding is not permitted.

Front 15

All of the following statements regarding coverage testing under IRC §410(b) are TRUE, EXCEPT:

A. In the average benefit test, the plan must satisfy the nondiscriminatory classification test.

B. A plan that fails coverage testing may be amended within 9½ months after the end of the plan year to comply with IRC §410(b) retroactively.

C. A plan that includes a fail‐safe provision may not be able to satisfy coverage testing using the average benefit test.

D. In the average benefit test, the plan must satisfy the average benefit percentage test.

E. In order to pass the ratio percentage test, 70 percent of the non excludable employees must be considered benefiting.

Back 15

E.

In order to pass the ratio percentage test, the percentage of NHCEs who benefit under the plan must be at least 70 percent of the percentage of HCEs that benefit under the plan.

Front 16

Which of the following is/are permissible options for correcting a ratio percentagetest failure under IRC §410(b)?

I. Allocate a contribution to vested employees who terminated employment.

II. Expand the group of HCEs who benefit under the plan.

III. Expand the group of NHCEs who benefit under the plan.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Back 16

C

Expanding the group of HCEs who benefit under the plan will not correct a ratio percentage test failure. only expanding the group of NHCE would.

Front 17

Based on the following information, determine the ratio percentage under IRC§410(b):

--The plan is a calendar year plan ending December 31, 2014.

--Participants must work 1,000 hours during the plan year and be employed on the last day of the plan year to share in the contribution allocation.

EE HCE Hours Term date

A yes 2,080

B yes 1,000 5/31/2014

C no 2,080

D no 425 3/15/2014

E no 1,250 10/01/2014

A. 33.33%

B. 40.00%

C. 50.00%

D. 66.67%

E. 100.00%

Back 17

E

total work force 5

total HCE 2

total HCE not excl 1

total NHCE 2

total NHCE not excl 1

HCE not exc/total HCE 1/2 =50%

NHCE not excl/toal NHCE 1/2= 50%

50%/50% = 100%

employee D was not included since he didnt have enough hours, 425, to be included.

Front 18

Which of the following conditions placed on plan participants is/are going tonegatively impact coverage testing under IRC §410(b)?

I. Participants must be employed on the last day to receive a profit sharing contribution.

II. Participants must work at least 1,000 hours during the plan year to receive aprofit sharing contribution.

III. Employees of Division A are not eligible for the plan.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

Back 18

E

all can negatively impact coverage testing.

If the plan includes a last day condition or requires 1,000 hours to be eligible for a contribution, it is likely that not all non excludable employees will benefit.

In addition, excluding a division of employees from participation also affects coverage testing as well.

Front 19

Based on the following information, determine the minimum number of NHCEs that must benefit under the plan to pass the ratio percentage test under IRC §410(b):

--The plan is a calendar year profit sharing plan.

--The plan eligibility requirements are age 21 and one year of service.

--The plan sponsor has two divisions and would like to exclude Division Aemployees from the plan.

total non-excl HCE 10

total benefiting HCE 9

total NHCE 200

total NHCE under 21 15

total NHCE that comp less a year 35

A. 95

B. 107

C. 112

D. 120

E. 140

Back 19

A

total work force 210

total HCE 10

total HCE not excl 9

total NHCE 200

total NHCE not excl 150

HCE not excl/total HCE = 9/10=90%

NHCE not excl/total NHCE 150/200 = 75%

question asks how many NHCE can be included to pass ration test. you only need 70%.

what 70% of 90% (HCE ratio) = 63%

what 63% of 150 (number of NHCE not excl) = 94.5 or 95

so you need 95 NHCE to be included to pass

(READ QUESTION CAREFULLY)

* if the question asked how many NHCE can be Excluded then you would take 150 - 95 = 55

Front 20

All of the following statements regarding aggregation and disaggregation for coverage testing under IRC §410(b) are TRUE, EXCEPT:

A. Permissive aggregation allows the employer to aggregate the plan with another plan and treat the two plans as a single plan for coverage testing purposes.

B. Plans may not be permissively aggregated unless they are the same type of plan(i.e., both profit sharing plans, both money purchase plans, etc.).

C. Under certain circumstances, an employer may elect to disaggregate certain groups of employees and perform coverage testing separately for each group.

D. The benefiting group includes only the employees who benefit under the disaggregated portion of the plan being tested.

E. Employees who have not satisfied the planʹs age and service requirements for the disaggregated portion being testing are excluded.

Back 20

B

Plans need not be the same plan type (i.e., both profit sharing plans, both money purchase plans, etc.) in order to use permissive aggregation.

However, they must be qualified plans under IRC §401(a) to use permissive aggregation.

And employer MAY NOT aggregate a qualified plan with a 403(b) plan or a SEP to demonstrate that the qualified plan passes the coverage test under IRC §410(b).