ABC Company is a family owned business that is established by Benjamin and Sarah. They are married
Question:
ABC Company is a family owned business that is established by Benjamin and Sarah. They are married and Frank is their son. ABC sponsors a profit sharing plan with employee deferral arrangement. The employee census information is in the chart below.
Employee | Age | Years of Service | Ownership | Salary | Employer Contribution | Employee Deferral |
Benjamin | 52 | 20 | 60% | $330,000.00 | $ 33,000.00 | $ 18,000.00 |
Sarah | 49 | 20 | 30% | $ 210,000.00 | $ 21,000.00 | $ 18,000.00 |
Chad | 30 | 8 | 5% | $ 80,000.00 | $ 8,000.00 | $ 10,000.00 |
Dave | 32 | 12 | 3% | $ 180,000.00 | $ 18,000.00 | $ 15,000.00 |
Erin | 25 | 5 | 0% | $ 140,000.00 | $ 14,000.00 | $ 15,000.00 |
Frank | 22 | 4 | 2% | $ 50,000.00 | $ 5,000.00 | $ 8,000.00 |
Ginger | 21 | 11 mon | 0% | $ 40,000.00 | $ 0 | $ 0 |
Haley | 21 | 23 mon | 0% | $ 30,000.00 | $ 3,000.00 | $ 2,000.00 |
Irish | 35 | 2 | 0% | $ 20,000.00 | $ 2,000.00 | $ 1,000.00 |
Jen | 19 | 8 mon | 0% | $ 20,000.00 | $ 0 | $ 0 |
$ 1,100,000.00 | $ 104,000.00 | $ 87,000.00 |
Questions:
What is the covered compensation amount for this plan? (3 points)
Define Highly Compensated Employee. (2 point)
Who are the Highly Compensated Employees in this plan? Explain why. (4 points)
Does your answer to the question 3 change if the company makes the 20% election? Explain why. (4 points)
Define Key Employees. (2 point)
Who are the Key Employees in this plan? Explain why. (4 points)
Is this a Top Heavy Plan? Explain why. (3 points)
Does the plan pass Safe Harbor Test? Explain why. (3 points)
Does the plan pass the Ratio Percentage Test? (3 points)
The plan uses the least generous graduated vesting schedule. What is vested account balances of Erin, Frank, and Irish? (6 points)
What is the most that could be contributed to a profit sharing plan and deducted by ABC? (4 points)
How many employees must be covered by the company? (4 points)
If it were a Defined Benefit plan? (4 points)
A qualified plan with deferral arrangement must satisfy one of the two other tests in addition to qualified plan coverage tests. What are those two tests? (4 points)
Expert Answer:
1 The covered compensation amount for this plan is the total compensation of all eligible employees subject to certain limits In this case the covered compensation amount is 110000000 which is the sum ... View the full answer
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young
