CPFA Module 2 Exam with Questions and Answers

CPFA Module 2 Exam with Questions and Answers Eligibility ANSWER -eligibility for the plan is different from eligibility to receive a contribution allocation. An employee can be eligible for the plan, but not have met the requirements to receive an employer contribution Pre-Participation Compensation - Eligibility ANSWER Compensation earned prior to becoming eligible and participating under the plan - pro: Can help control contribution costs -con: More complex for HR staff and payroll providers to administer Specific Parts of Eligible W2 Compensation - Eligibility ANSWER (Such as bonuses, overtime, or commissions) -pro:Can benefit specific groups of employees -con: Plan is no longer using a safe harbor definition of compensation, and plan must pass specific compensation nondiscrimination test to prove that the definition does not favor HCEs Post tax contributions are ANSWER - Roth contributions and the other is after-tax employee contributions. - The difference is Roth earnings may be tax free if certain requirements are met but after-tax employee contribution earnings are always taxed upon distribution. - Although exempt from federal and state tax, employee contributions are still subject to Social Security and Medicare taxation.