Final answer:
The minimum coverage tests for qualified retirement plans are the nondiscrimination test, the average benefits percentage test, and the ratio test. These tests ensure that the plans do not unfairly favor highly compensated employees over non-highly compensated employees.
Step-by-step explanation:
The minimum coverage tests for qualified retirement plans include the nondiscrimination test, the average benefits percentage test, and the ratio test:
- Nondiscrimination test: Ensures that the plan does not favor highly compensated employees over non-highly compensated employees.
- Average benefits percentage test: Checks that the average benefits provided to non-highly compensated employees are at least 70% of those provided to highly compensated employees.
- Ratio test: Compares the percentage of non-highly compensated employees benefiting from the plan to the percentage of highly compensated employees benefiting. Typically, this ratio must be at least 70%.
The maximum compensation test, on the other hand, is not a coverage test, but rather a limit on the amount of annual compensation that can be taken into account for plan purposes.