Bruno terminated employment with Philip’s Bar and Grill (PBG) after completing f

Question

Bruno terminated employment with Philip’s Bar and Grill (PBG) after completing five years of service. PBG sponsors a 401(k) profit sharing plan with a dollar for dollar match up to 6% of compensation in which Bruno had an account balance of $50,000. Of that account balance, $20,000 was attributable to PBG noncontributory contributions and $30,000 was attributable to the combination of Bruno’s deferral contributions and the equivalent employer match on those deferral contributions. At this time, considering Bruno has terminated employment and that PBG’s 401(k) profit sharing plan is not top-heavy and follows the least generous graduated vesting schedule permitted under PPA 2006, what is Bruno’s vested account balance in the 401(k) profit sharing plan?

(a)            $43,000.

(b)            $44,000.

(c)            $46,000.

(d)            $47,000.

Explanation / Answer

Answer: (a) $43000

Here, Bruno has been with the company for 5 years and so would be 80% (least generous vesting schedule, 2-6 graded) vested in the noncontributory contributions of $20k. 80% x $20k gives us $16k for Bruno.

You are always fully vested in your own deferrals, so we now need to calculate the company match, which Bruno would have the same 80% vesting as with the noncontributory contributions. The question tells us it is a dollar for dollar match, so that means 50% is Bruno’s deferral (1/2 of $30k is $15k, this $15k is all Bruno) and the other half comes from the employer. The employer’s half is subject to the 80% vesting rule which gives us (80% x $15k) $12k for Bruno.

Adding it all up, we have the $16k + $12k + $15k for a total of $43k. Bruno is vested in $43k total.

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