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17 May, 17:45

The XYZ Company has 2 employees: John, who earns $300,000 annually, and his assistant, Sally, age 26, who has worked for John for 4 years. Sally earns $20,000 annually. XYZ has a profit-sharing plan with Section 401 (k) provisions using graded vesting. Sally's total account balance of $5,500 in the plan consists of the following: Employee contributions: $1,500 Employer contributions: $2,000 Earnings on employee contributions: $800 Earnings on employer contributions: $1,200 If Sally terminated employment with XYZ this year after 4 years of employment, what is her vested account balance?

A. $4,220

B. $2,940

C. $3,580

D. $4,860

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Answers (1)
  1. 17 May, 17:51
    0
    The correct answer is A - $4220

    Explanation:

    Working

    Employee Name Annually Salary Salary for 4 Years

    John $ 300,000.00 $ 1,200,000.00

    Sally $ 20,000.00 $ 80,000.00

    Calculation:

    List Of Account Balance Actual Balance Deductions as per 401 (k) rule As per 401 (K) provisions balance

    Employee Contribution $ 1,500.00 $ 0.00 $ 1,500.00

    Employer Contribution $2,000.00 $800.00 $ 1,200.00

    Earnings on Employee Contribution$800.00 $0.00 $ 800.00

    Earnings on Employer Contribution $1,200.00 $480.00 $720.00

    Sally's Total Balance $5,500.00 $1,280.00 $4,220.00

    Clarification of above working: After 3 years but before 5 years completion of service, Miss Sally will be entitled only 60% of the amount of money that XYZ contributed in 401 (k) provision, hence out of total employer contribution and earnings on that will be reduced by 40%. Employee contribution part remains constant.

    Answer:

    $4220
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