Chapter 7 - Benefit Limitations Under IRC 415

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  1. All of the following statements regarding the limitations under IRC 415 are TRUE, EXCEPT:
    A.  The dollar limit must be reduced if the participant has only five years of participation at retirement.
    B.  The dollar limit must be reduced if a qualified joint and survivor annuity is the elected form of benefit.
    C.  The dollar limit is increased if the retirement age is greater than age 65.
    D.  A $10,000 minimum benefit cannot be provided in a DB plan if the employer also maintains an IRC 401(k) plan which all employees are participating.
    E.  The dollar limit must be reduced where benefit payments begin before age 62.
    B

    Statement B is false since it is not necessary to reduce the dollar limit for a qualified joint and survivor benefit.
  2. Which of the following statements regarding the limitations under IRC 415 is/are true?

    I.  The annual benefit that may be paid to a participant under a defined benefit plan is limited to the greater of the dollar limit or 100% of the participant's highest consecutive 3-year average compensation.

    II.  For the percentage limit, the compensation must be averaged over the highest consecutive three-year period.

    III.  The percentage limit must be reduced proportionately for years of service less than ten (but not less than 10% of the full limit).

    A.  I only
    B.  II only
    C.  I and III only
    D.  II and III only
    E.  I, II and III
    D

    Statement I is false, since it should say "lesser" not "greater".  The other two statements are correct.
  3. Based on the following information, which of the following represents the maximum annual benefit that a participant reaching his NRA of 65 in 2012 can have?
    - The participant has never participated in another plan of the employer.
    - The IRC 415 dollar limit for 2012 is $200,000
    I.  $120,000 for a participant with 7 years of participation and 9 years of service with average compensation of $150,000 per year.
    II.  $9,000 for a participant with 8 years of participation and 9 years of service with an average compensation of $6,000 per year
    III.  $180,000 for a participant with 8 years of participation and 10 years of service with an average compensation of $180,000 per year.

    A.  I only
    B.  II only
    C.  I and III only
    D.  II and III only
    E.  I, II and III
    • B
    • In statement I, the maximum benefit is $135,000.  This is equal to the compensation limit of $150,000 x 9/10 (note that the dollar limit of $200,000 x 7/10 is larger).  In statement II, it is true that the maximum benefit is $9,000.  This is true even though it exceeds the $6,000 compensation due to the de minimis $10,000 benefit, which must be reduced by $1,000 due to service less than 10 years.  In statement III the maximum benefit is the dollar limit of $160,000 = $200,000 x 8/10.
  4. Based on the following information, determine the maximum monthly benefit under IRC 415 for a participant based on the following information.  The participant has never been in any other plan of the employer:
    - Average monthly compensation = $600
    - Years of service = 6
    - Years of participation = 5

    A.  $300
    B.  $360
    C.  $417
    D.  $500
    E.  $600
    • D
    • $500=$10,000/12 x 6/10.  Note that the $10,000 annual de minimis amount applies since the annual compensation is less than $10,000.  The dollar limit would clearly not apply since it is so much larger than $10,000 (on an actual basis).

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bboylegsr
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235077
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Chapter 7 - Benefit Limitations Under IRC 415
Updated:
2013-09-16 03:19:19
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Chapter 7 - Benefit Limitations Under IRC 415
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