Planning for Retirement Needs. Coverage, Eligibility, and Participation Rules Chapter 7. Coverage 410(b) 401(a)(26) Aggregation Participation 21-and-one rule 2-year/100 percent Rules for SEP, SIMPLE, 403(b). Overview. 5-percent owners in current or previous year
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Coverage, Eligibility, and Participation Rules
100 eligible employees
15 of 30 HCEs are covered (50%)
40 of 70 non-HCEs are covered (57%)
Minimum coverage is 50% x 70% ((35%)Ratio Test
If the company has 1,000 employees, how many have to be covered?401(a)(26)
A org-B org affiliation
Work together to produce a product
One is a service organization
Some common ownership
Management servicesAffiliated Service Groups
“All non-union employees who have attained age 21 and have earned one year of service will be eligible to participate on the January 1 or July 1 following completion of one year of service.”Coverage Case Study #1
Identify any leased employees.
Eliminate excludible employees.
Test 410(b) coverage using the ratio test.
If any plan fails, look to average benefits test.
If failure, refer to separate line of business rules.
Test defined-benefit plans under 401(a) 26.Case Study #3 Answer
A SIMPLE plan will have to cover all employees of both companies who have earned at least $5,000 in any 2 previous years.Case Study #4 Answer
An employer wanting to elect a large number of customized design features can generally use an adoption agreement.
An individual who is a 5-percent owner in the current year earning $35,000 a year is considered a highly compensated employee for the current year.
An individual who is a new employee earning $150,000 in 2007 will be a highly compensated employee for 2007.True/False Questions
Each plan of a large corporation operating separate lines of business must satisfy the 410(b) coverage test, taking into consideration all employees of the corporation.True/False Questions
If the integration level in a defined contribution plan is $85,000 the maximum contribution based on compensation in excess of the integration level is 5.7%.
An eligibility provision in a qualified plan can provide that employees earn 3 years of service before participation as long as the plan satisfies the coverage requirements of Code Sec. 410(b).
The percentage test requires a plan to benefit at least 70 percent of employees who are not highly compensated.True/False Questions
A defined-contribution plan that covers no highly compensated employees can cover any number of non-highly compensated employees.
A qualified plan can exclude all employees who do not complete a 1,000 hours of service in a year.True/False Questions