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2009 DB Exam - 415 Limitation Calc - $10,000 de minimus


Guest munj34

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Guest munj34

One more question regaridng one of the questions on the sample test:

Q. 24: Based on the following information, determine the maximum allowable monthly benefit for a participant in 2008 who has never been in any other plan of the employer:

Average monthly compensation $500

Years of service 5

Years of participation 4

Maximum Dollar Limit for 2008 $185,000

A. $200

B. $250

C. $333

D. $417

E. $500

A: B

The percentage of comp limit is 5/10*$500 = $250 while the dollar limit is $185,000*4/10 = $74,000 per year of $6,167 per month. The maximum monthly accrual is the lesser of the two or $250.

Why doesn't the answer taken into consideration the $10,000 deminimus?

$10,000/12 * 4/10 = $333

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Do the instructions to the test tell you to assume the de minimus benefit applies? (Is it optional, after all.)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I thought 'maximum' is an absolute. It is obvious from the possible answers that the de minimus was considered at both 4 and 5 years. As mr. rigby pointed out it depends on if instructions specifically exclude the de minimus benefits. If not, the suggested answer (IMHO) is wrong. I would use D.

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Guest munj34

Thank you.

No, the question does not specify that the $10,000 deminimus applies. However, an almost identical question appears in the study guide (Sample Test Question #4 of the 2009 DB Study Guide) in which the correct answer given does apply the $10,000 deminimus and the question does not instruct that the deminimus is being used.

Here is the entire text of the question:

Calculate the maximum monthly benefit for a participant in 2007 based on

the following information. The participant has never been in any other plan

of the employer.

Average monthly compensation - $600

Years of Service - 6

Years of participation - 5

A. $300

B. $360

C. $417

D. $500

E. $600

Answer: The correct answer is D.

$500=$10,000/12 * 6/10. Note that the $10,000 annual de minimis amount

applies since the annual compensation is less than $10,000.

The only text in Chapter 7 about the $10,000 deminimum is on page 192:

I.A.2.c: If the employer never maintained a defined contribution plan in

which the employee has participated, a $10,000 de minimis annual benefit

can be provided, regardless of compensation.

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