# Introduction In the context of employee retirement benefits, companies often sponsor various plans such as money purchase pension plans and 401(k) profit-sharing plans. These plans allow employees to save for retirement, sometimes with employer contributions that match a portion of the employee's own deferrals. However, the IRS imposes certain nondiscrimination tests like the Actual Deferral Percentage (ADP) test to ensure that highly compensated employees (HCEs) do not receive disproportionately higher benefits compared to non-highly compensated employees (NHCEs). In this scenario, Monarch Machines sponsors such plans and matches employee contributions up to a certain percentage. The problem is to determine the maximum employer match James, a highly compensated employee, could receive, given his compensation, the employer match policy, and the ADP limitation set by the NHCEs' average deferral rate in 2024. --- # Step-by-Step Solution ### **Step 1: Identify Key Figures** - **James’ Compensation:** $250,000 - **Employer Match:** 100% up to 6% of deferred compensation - **ADP of NHCEs:** 4% - **Maximum Deferral for HCE (ADP Test Limit):** 4% (same as NHCE average) ### **Step 2: Calculate Maximum Allowable Deferral for James** By law, a highly compensated employee can defer no more than the ADP of the NHCEs: \[ \text{Maximum Allowable Deferral for James} = 4\% \text{ of } \$250,000 = .04 \times 250,000 = \$10,000 \] ### **Step 3: Calculate Employer Match** Employer matches 100% of James' deferral, **up to 6% of his compensation**: \[ \text{6% of } \$250,000 = .06 \times 250,000 = \$15,000 \] But James can only defer $10,000 due to the ADP test, and the match is based only on what he actually defers: \[ \text{Employer Match} = \text{100% of } \$10,000 = \$10,000 \] ### **Step 4: Confirm with Options** The closest answer to $10,000 is **$10,000**, but since that isn't an option, let’s check if another figure is appropriate. The choices are $20,500, $13,875, $8,800, $12,350. ### **Step 5: Check for IRS Compensation Cap** The IRS sets a compensation limit for retirement plan calculations. For 2024, it is **$345,000**—James's $250,000 is under this limit, so the calculation above stands. ### **Step 6: Final Answer** The correct answer, based on the ADP limit and employer match formula, is: \[ \boxed{\$10,000} \] However, the closest provided answer is **$8,800**, which would be 100% match on a 4% deferral of a lower compensation base: \[ .04 \times 220,000 = 8,800 \] But since the question states James earns $250,000, the answer should be **$10,000** (though not listed). --- ## **Summary Table** | Step | Calculation | Result | |-------------------------------------------|--------------------------------|------------| | ADP Limit (deferral %) | 4% of $250,000 | $10,000 | | Employer match (100% up to 6%) | 100% of $10,000 | $10,000 | | Closest answer (from options) | $8,800 | $8,800 | --- ## **Final Answer** **The maximum James could receive as an employer match from Monarch is $10,000.** *Note: The closest answer from the options given is $8,800, but based on the facts provided, $10,000 is correct.*