Question

Nick is concerned about how he will fund contributions to a defined contribution plan. You recommend that he use a unit formula based on employee compensation and years of service. The formula is calculated using one unit of credit for each year of service and one unit of credit for each $10,000 in earnings. If Nick is willing to allocate $30,000 in total contribuitons in andy given year, using a total allocation of 80 units (and disregarding any key employee or top-heavy restrictions), what is the maximum amount that will be contributed to Nick's account?

Nick is age 60, has worked in the business for thirty years, and earns $110,000 per year.

a. $9,675
b. $13,225
c. $15,375
d. 22,750

Answer 1

Correct option is C $15,375

Step-by-step explanation:

• number of units earned = 1 unit for each year of service completed
• no of years service completed = 30
• number of units = 1*30 = 30
• number of units on the basis of annual salary = i unit for every 10000 earning (110000/10000)*1 = 11
• total units to be contributed = 30+ 11 = 41
• total units = 80 and total contribution in a year =30000

• Maximum amount to be contributed in NIck's account = (30000/80)*41 = $15375