QKA 2 || 100% Verified Answers.
True or False: salary reductions are a form of indirect compensation. correct answers False;
they are direct compensation
List 2 examples of indirect compensation. correct answers Reimbursements, expense
allowances, fringe benefits
What IRC code section limits the amount of compensation that may be taken into account for
allocations? correct answers 401(a)(17)
List 3 things that 415 comp MUST be used to determine. correct answers HCEs, key
employees, top-heavy minimums, and the 5% minimum gateway
Name the type of compensation used for nondiscrimination testing purposes. correct answers
414(s) Compensation
List the 3 base definitions of 415 compensation. correct answers W-2 comp, current
includable compensation, wages for income tax withholding (3401a)
True or false: noncash tips are included in W-2 compensation. correct answers False
True or false: 415 comp must be used for purposes of allocating employer contributions.
correct answers False; plan comp is used for accrual/allocation purposes and does not HAVE
to be 415
True or false: if you exclude ALL fringe benefits from 414(s) compensation, it is considered
a safe harbor exclusion that does not require a 414(s) test. correct answers True
List the four 414(s) safe harbor exclusions. correct answers Pre-entry compensation, all fringe
benefits, all salary deferrals (pre-tax/Roth deferrals, section 132(f), and pre-tax health 125),
and any exclusion that applies only to HCEs
True or false: if a plan provides an employer match that is based upon how much the
employees defer, then both the match component and deferral component must use the same
definition of compensation under the plan. correct answers False
True or false: excess Group Term Life insurance is included in all definitions of 415
compensation. correct answers False; it is excluded from the 3401a definition
True or false: noncash tips are excluded from W-2 compensation. correct answers True
Name the forms where earned income can be found for the following:
- Sole-proprietors
- Partnerships correct answers Sole-prop: Schedule C
Partnership: Schedule K-1
,True or false; shareholders of S-corps may have both W-2 and K-1 compensation counted for
plan purposes. correct answers False; if a shareholder of an S-corp receives both a W-2 and a
K-1, only the W-2 income can be considered for plan purposes
True or false: excess Group Term Life Insurance (it becomes excess once it exceeds 50,000
btw) is included in W-2 compensation. correct answers True
True or false: all taxable fringe benefits (other than excess GTL for the sake of 3401a
compensation) are included in ALL base definitions of 415 compensation. correct answers
True
True or false: for post-severance compensation to be included in 415 comp, the payments
MUST be made by the earlier or 2.5 months after severance or the last day of the
compensation determination year in which the severance occurs. correct answers False; it is
the LATER of those two events
List the 3 types of post-severance compensation that are eligible to be included in 415 comp.
correct answers - Regular compensation paid after severance (i.e. a final paycheck)
- Leave cash-outs (i.e. unused PTO or sick days)
- Nonqualified deferred compensation (note: in order to be eligible for inclusion, these MUST
have become payable for any reason OTHER than terminating)
True or false: post-severance compensation that meet the criteria for inclusion in 415
compensation MUST be included in 415 comp for plan purposes. correct answers False; post-
severance comp is an optional inclusion that will be specified in the plan doc
True or false; nonelective employer contributions that are allocated using the permitted
disparity method are considered nondiscriminatory so long as the allocations are based on a
definition of compensation that satisfies 414(s). correct answers True
Ella's compensation for the year is $500,000 and she deferred $15,000. Her plan provides a
matching contribution that matches 100% on the first 3% deferred. The compensation limit in
effect for the plan year is $305,000. What is Ella's matching contribution for the year?
A. $15,000
B. $8,700
C. $9,150 correct answers C. $9,150
$15,000/$500,000 = 3%
3% * $305,000 = $9,150
What is the most popular form of election under a CODA? correct answers A salary
reduction agreement
True or false: a salary reduction agreement may not apply to bonuses or commissions. correct
answers False; a salary reduction agreement may apply to current salary, to a salary increase
or to a bonus, commission, or other form of compensation for services.
, What is the IRC 404(a)(3) deduction limit? correct answers Employers are allowed a
deduction for contributions of up to 25% of the compensation paid or accrued to participants
during the employer's taxable year.
True or false: the 404(a)(3) deduction limit and the 401(a)(17) dollar limit overlap —
meaning that for the sake of determining the deduction limit, if an EE earns $400,000 in
2021, that only $290,000 of that is taken into account for determining the plan's deduction
limit for the year. correct answers True
Remember, the deduction limit is calculated by:
Total compensation for every EE * 25% = the maximum amount of ER contributions that can
be made for the year
True or false: HCE determination for related employers is made on a related group basis.
correct answers True
True or false: of there are related organizations, ownership in each corporation is aggregated
to determine if an employee satisfies the 5-percent owner test. correct answers False; if an
employee owns 2% of Corporation X and 4% of Corporation Y, the employee does not
satisfy the 5-percent owner test
True or false: lookback year compensation has no bearing on the compensation test for HCE
determination. correct answers False
True or false: current year compensation has no bearing on the compensation test for HCE
determination. correct answers True
True or false: the calendar year data election applies only to the compensation test and not the
5% owner test. correct answers True
The top-paid group election limits the number of HCEs to the top ____% of employees for
the lookback year ranked by compensation. correct answers 20
What is the name of the rule that states an employer is not permitted to elect to use the top-
paid group election to determine HCEs for purposes of the ADP test, but then opt out of the
election to determine HCEs for purposes of applying the coverage test for the same plan year.
correct answers The Consistency Rule
True or false: when applying the top-paid group election to determine the HCEs for the plan
year, you must add back in any more than 5% owners that make below the top-paid group
compensation threshold to the total group of HCEs. correct answers True
List the 5 types of exclusions when determining the top-paid group. correct answers -
Employees who have not completed at least six months of service by the end of the year
- Employees who normally work less than 17½ hours per week
- Employees who normally work less than six months per year
- Employees younger than age 21.
-Union employees if more than 90% are covered by a collectively bargained agreement
True or False: salary reductions are a form of indirect compensation. correct answers False;
they are direct compensation
List 2 examples of indirect compensation. correct answers Reimbursements, expense
allowances, fringe benefits
What IRC code section limits the amount of compensation that may be taken into account for
allocations? correct answers 401(a)(17)
List 3 things that 415 comp MUST be used to determine. correct answers HCEs, key
employees, top-heavy minimums, and the 5% minimum gateway
Name the type of compensation used for nondiscrimination testing purposes. correct answers
414(s) Compensation
List the 3 base definitions of 415 compensation. correct answers W-2 comp, current
includable compensation, wages for income tax withholding (3401a)
True or false: noncash tips are included in W-2 compensation. correct answers False
True or false: 415 comp must be used for purposes of allocating employer contributions.
correct answers False; plan comp is used for accrual/allocation purposes and does not HAVE
to be 415
True or false: if you exclude ALL fringe benefits from 414(s) compensation, it is considered
a safe harbor exclusion that does not require a 414(s) test. correct answers True
List the four 414(s) safe harbor exclusions. correct answers Pre-entry compensation, all fringe
benefits, all salary deferrals (pre-tax/Roth deferrals, section 132(f), and pre-tax health 125),
and any exclusion that applies only to HCEs
True or false: if a plan provides an employer match that is based upon how much the
employees defer, then both the match component and deferral component must use the same
definition of compensation under the plan. correct answers False
True or false: excess Group Term Life insurance is included in all definitions of 415
compensation. correct answers False; it is excluded from the 3401a definition
True or false: noncash tips are excluded from W-2 compensation. correct answers True
Name the forms where earned income can be found for the following:
- Sole-proprietors
- Partnerships correct answers Sole-prop: Schedule C
Partnership: Schedule K-1
,True or false; shareholders of S-corps may have both W-2 and K-1 compensation counted for
plan purposes. correct answers False; if a shareholder of an S-corp receives both a W-2 and a
K-1, only the W-2 income can be considered for plan purposes
True or false: excess Group Term Life Insurance (it becomes excess once it exceeds 50,000
btw) is included in W-2 compensation. correct answers True
True or false: all taxable fringe benefits (other than excess GTL for the sake of 3401a
compensation) are included in ALL base definitions of 415 compensation. correct answers
True
True or false: for post-severance compensation to be included in 415 comp, the payments
MUST be made by the earlier or 2.5 months after severance or the last day of the
compensation determination year in which the severance occurs. correct answers False; it is
the LATER of those two events
List the 3 types of post-severance compensation that are eligible to be included in 415 comp.
correct answers - Regular compensation paid after severance (i.e. a final paycheck)
- Leave cash-outs (i.e. unused PTO or sick days)
- Nonqualified deferred compensation (note: in order to be eligible for inclusion, these MUST
have become payable for any reason OTHER than terminating)
True or false: post-severance compensation that meet the criteria for inclusion in 415
compensation MUST be included in 415 comp for plan purposes. correct answers False; post-
severance comp is an optional inclusion that will be specified in the plan doc
True or false; nonelective employer contributions that are allocated using the permitted
disparity method are considered nondiscriminatory so long as the allocations are based on a
definition of compensation that satisfies 414(s). correct answers True
Ella's compensation for the year is $500,000 and she deferred $15,000. Her plan provides a
matching contribution that matches 100% on the first 3% deferred. The compensation limit in
effect for the plan year is $305,000. What is Ella's matching contribution for the year?
A. $15,000
B. $8,700
C. $9,150 correct answers C. $9,150
$15,000/$500,000 = 3%
3% * $305,000 = $9,150
What is the most popular form of election under a CODA? correct answers A salary
reduction agreement
True or false: a salary reduction agreement may not apply to bonuses or commissions. correct
answers False; a salary reduction agreement may apply to current salary, to a salary increase
or to a bonus, commission, or other form of compensation for services.
, What is the IRC 404(a)(3) deduction limit? correct answers Employers are allowed a
deduction for contributions of up to 25% of the compensation paid or accrued to participants
during the employer's taxable year.
True or false: the 404(a)(3) deduction limit and the 401(a)(17) dollar limit overlap —
meaning that for the sake of determining the deduction limit, if an EE earns $400,000 in
2021, that only $290,000 of that is taken into account for determining the plan's deduction
limit for the year. correct answers True
Remember, the deduction limit is calculated by:
Total compensation for every EE * 25% = the maximum amount of ER contributions that can
be made for the year
True or false: HCE determination for related employers is made on a related group basis.
correct answers True
True or false: of there are related organizations, ownership in each corporation is aggregated
to determine if an employee satisfies the 5-percent owner test. correct answers False; if an
employee owns 2% of Corporation X and 4% of Corporation Y, the employee does not
satisfy the 5-percent owner test
True or false: lookback year compensation has no bearing on the compensation test for HCE
determination. correct answers False
True or false: current year compensation has no bearing on the compensation test for HCE
determination. correct answers True
True or false: the calendar year data election applies only to the compensation test and not the
5% owner test. correct answers True
The top-paid group election limits the number of HCEs to the top ____% of employees for
the lookback year ranked by compensation. correct answers 20
What is the name of the rule that states an employer is not permitted to elect to use the top-
paid group election to determine HCEs for purposes of the ADP test, but then opt out of the
election to determine HCEs for purposes of applying the coverage test for the same plan year.
correct answers The Consistency Rule
True or false: when applying the top-paid group election to determine the HCEs for the plan
year, you must add back in any more than 5% owners that make below the top-paid group
compensation threshold to the total group of HCEs. correct answers True
List the 5 types of exclusions when determining the top-paid group. correct answers -
Employees who have not completed at least six months of service by the end of the year
- Employees who normally work less than 17½ hours per week
- Employees who normally work less than six months per year
- Employees younger than age 21.
-Union employees if more than 90% are covered by a collectively bargained agreement
