Question

Paul's employer maintains a qualified defined benefit pension plan. There are 100 eligible employees working for the company. What is the minimum number of employees the retirement plan must cover to satisfy the 50/40 test?

A) 90
B) 70
C) 50
D) 40

Answer 1

The minimum number of employees the retirement plan must cover to satisfy the 50/40 test is 70. (option B)

Step-by-step explanation:

The minimum number of employees the retirement plan must cover to satisfy the 50/40 test is 70 (option B).

The 50/40 test is a requirement for a qualified defined benefit pension plan, which states that at least 50% of eligible employees must be covered by the plan, and at least 40% of eligible employees must actually participate in the plan. Since there are 100 eligible employees, the minimum number of employees the plan must cover is 50% of 100, which is 50 employees.

However, not all eligible employees may choose to participate in the plan. The plan must also satisfy the requirement that at least 40% of eligible employees actually participate. 40% of 100 is 40 employees. Therefore, the plan must cover at least 50 employees and have 40 employees who participate in order to satisfy the 50/40 test.