Imagine your employer asks you to assist in determining whether their DC plan meets several of the criteria to be considered a qualified plan. For each of the following plan features, please indicate whether or not the plan meets the requirements. If so, explain why. If not, please explain how the plan can be changed to ensure that the plan complies. (Do not worry about plan qualification requirements that are not listed.)

a. The plan requires individuals to wait 6 months before becoming eligible to participate.
b. The employer has 250 employees, 40 of whom are considered highly compensated. 38 of the highly compensated employees are covered by the plan. 145 of the non-highly compensated employees are also covered by plan.
c. Employer contributions vest according to the following schedule:

After this many years of service Employee is vested in this % of employer contributions
1 15
2 30
3 45
4 60
5 80
6 100

a) meets the requirements. It sets eligibiity criteria for the plan.

b) doesn't meet the requirements. This feature doesn't give out details of the employees as to why or why they aren't covered by the plan. The details of highly compensated employees covered or not covered by plan must be listed.The details of non-highly compensated employees must also be listed.

c) meets the requirements. The employees who have spent greater number of years with the companies must get larger contribution from the employer in the plan. This feature meets this requirement

Explanation:

Every defined contribution plan or DC plan must have an eligibility criteria. It must have complete records and details of employees who are going to be covered or not covered by the plan. It must also have the details of amount of benefit that will be received by employees and the details of contribution made by the employer. The plan must also differentiate the amount of benefit received by different groups of employees.

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