Question

Which of the following statements concerning non-discrimination rules that apply to qualified plans is correct? Group of answer choices

Compliance can only be achieved if the contribution rate for HCEs is no more than twice the rate of contribution for NHCEs.

There are only subjective, case-by-case tests for determining non-discrimination compliance.

The regulations require that all plans perform a mathematical test each year.

A plan can demonstrate compliance by showing that either benefits or contributions are non-discriminatory.

Answer 1

The correct answer is option 1.

In general, 410(b) sets out rules on who the plan must cover. In order to satisfy this Code section, a plan must meet one of the following tests:

1. The plan benefits at least 70 per cent of employees who are not highly compensated employees (percentage test).
   
2. The plan benefits:
   
   (i) a percentage of non-highly compensated employees which is at least 70 per cent of
   
   (ii) the percentage of highly compensated employees benefiting under the plan (ratio test).