In 20117, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k)

Question

In 20117, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee contributes. The maximum employer contribution under the plan is 15 percent of the employee's salary (If allowed, YBU contributes until the employee has contributed 30 percent of her salary). (Use Exhibit 13-2)

a.) Maggy has worked for BYU corporation for 3 1/2 years before deciding to leave. Maggy's annual salary during this time was $45,000, $52,000, $55,000, and $60,000 (she only received half of her final year's salary). Assuming Maggy contributed 8% of her salary (including her 2017 salary) to her 401(k) account, what is maggy's vested account balance when leaves YBU (exclusive of account earnings)? Assume YBU uses three-year cliff vesting.

b.) Same question as part a, except YBU uses six-year graded vesting.

c.) Maggy wants to maximize YBU's contribution to her 401(k) account in 2017. How much should Maggy contribute to her 401(k) account assuming her annual salary is $100,000 (she works for YBU for the entire year)?

d.) Same question as part (c), except Maggy is 55 years old rather than 34 years old at the end of the year.

What is Maggy's contribution?

Please show the complete solutions. Thanks

Explanation / Answer

a) Salary Maggy's Contribution Employer Contribution @8% 50% of Maggy's Contribution 2014 45,000 3,600 1,800 2015 52,000 4,160 2,080 2016 55,000 4,400 2,200 2017 30,000 2,400 1,200 TOTAL 14,560 7,280 Maggy's vested account balance is $21,840 (14,560+7,280) Note: As per three year vesting, Employee is entitled to 100% of retirement benefit from Employer's contribution if employee has completed 3 years in Service. b) Salary Maggy's Contribution Employer Contribution @8% 50% of Maggy's Contribution 2014 45,000 3,600 720 2015 52,000 4,160 832 2016 55,000 4,400 880 2017 30,000 2,400 480 TOTAL 14,560 2,912 Maggy's vested account balance is $17,472 (14,560+2,912) Note: As per Six year graded vesting, Employee is entitled to 40% of retirement benefit from Employer's contribution if employee has completed 3 years in Service. c) Employer can contribute upto a Maximum of 15% of Employee's Salary. Also Employer is required to contribute 50% of employee's Contribution. Therefore, in order to achieve maximum allowable contribution from Employer, Maggy should contribute 30% of her annual Salary However, Maximum allowed contribution is $18,000 annually. Annual Salary = $100,000 Maggy's Contribution = $18,000 Employer Contribution = $9,000 d) If Employee is older than 50 years than the maximum allowed contribution is $24,000 Annually. Annual Salary = $100,000 Maggy's Contribution = $24,000 Employer Contribution = $12,000

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