Question

In: Accounting

Mr. Evon, who participates in his corporate employer’s qualified defined benefits plan, will be entitled to...

Mr. Evon, who participates in his corporate employer’s qualified defined benefits plan, will be entitled to receive an annual pension when he retires in five years. What is the maximum contribution that the employer can make to the plan on Mr. Evon’s behalf assuming that: His average compensation for his three highest compensation years is $145,000? His average compensation for his three highest compensation years is $250,000?

What is the maximum contribution that the employer can make to the plan on Mr. Evon’s behalf assuming that his average compensation for his three highest compensation years is $145,000?

What is the maximum contribution that the employer can make to the plan on Mr. Evon’s behalf assuming that his average compensation for his three highest compensation years is $250,000?

Expert Solution

Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.

The annual benefit for a participant under a defined benefit plan cannot exceed the lesser of:

1) 100% of the participant's average compensation for his or her highest 3 consecutive calendar years, or

2) $230,000 for 2020 ($225,000 for 2019)

Case: 1

Maximum contribution that the employer can make to the plan on Mr. Evon’s behalf assuming that his average compensation for his three highest compensation years is $145,000

Lesser of:-

1) 100% of the participant's average compensation for Mr. Evon’s highest 3 consecutive calendar years = $145000

2) $230,000 for 2020 (assumed year 2020)

Maximum contribution = $145000

Case: 2

Maximum contribution that the employer can make to the plan on Mr. Evon’s behalf assuming that his average compensation for his three highest compensation years is $250,000

Lesser of:-

1) 100% of the participant's average compensation for Mr. Evon’s highest 3 consecutive calendar years = $250000

2) $230,000 for 2020 (assumed year 2020)

Maximum contribution = $230000

ekkarill92 answered 2 years ago

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