Question

Angelo's Bakery has 105 employees. 90 of the employees are nonexcludable and 15 of those are highly compensated The company's qualified profit sharing plan benefits 8 of the highly compensated employees and 40 of the nonhighly compensated employees. Does the profit sharing plan sponsored by Angelo's Bakery meet the coverage test?

(a) Yes, the plan meets the average benefits percentagetest
(b) Yes, the plan meets the general safe harbor test
(c) Yes, the plan meets the ratio percentage test
(d) Yes, the plan meets ratio percentage est and the general safe harbor test

Answer 1

Angelo's Bakery's profit sharing plan meets the ratio percentage test because 44.44% of nonhighly compensated employees and 53.33% of highly compensated employees participate, exceeding the 70% threshold.

Step-by-step explanation:

To assess whether Angelo's Bakery profit sharing plan meets any coverage tests, we need to understand two of the tests mentioned: the ratio percentage test and the average benefits percentage test. The ratio percentage test requires that the percentage of nonhighly compensated employees benefiting from the plan is at least 70% of the percentage of highly compensated employees benefiting. Here, 40 out of 90 nonhighly compensated employees benefit from the plan, which is approximately 44.44%. For highly compensated employees, 8 out of 15 benefit, which is approximately 53.33%. To determine if the plan meets the ratio percentage test, we calculate 44.44% (nonhighly compensated) divided by 53.33% (highly compensated), which equals approximately 83.33% - higher than the 70% threshold. Thus, the plan meets the ratio percentage test. However, without more detailed information about the average benefits percentage test and the general safe harbor test, we cannot definitively conclude the satisfaction of these tests.