Monarch Machines sponsors a 15% money purchase pension plan and 401(k) profit sh

Question

Monarch Machines sponsors a 15% money purchase pension plan and 401(k) profit sharing plan in which the employees are permitted to defer up to 75% of their compensation. Monarch Machines matches employee deferral contributions 100% up to 6% of deferred compensation. If James, age 31, is a highly compensated employee who earns $200,000, what is the maximum he could receive as an employer match in 2016 from Monarch if the ADP of the NHC is 4%?

(a)            $8,000.

(b)            $10,500.

(c)            $11,500

(d)            $12,000.

Explanation / Answer

Answer:(c)            $11,500

The maximum amount that may be contributed to qualified plans on James’ behalf is $53,000 (2016). If James receives an allocation from Monarch’s money purchase pension plan of $30,000 ($200,000 x 15%), he can only receive an additional $23,000 from other sources. The ADP of the NHC is 4%, so James, as a HC employee could, based upon the ADP test, defer up to 6% of his compensation and Monarch will match him 100%. James could defer $11,500 of his compensation and Monarch would match $11,500. In this case, James will have received total annual additions of $53,000 ($30,000 + $11,500 + $11,500).

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