[N(k)S] 401(k) Specialist Practice Exam

I. Plan Establishment & Design

This section covers the foundational knowledge required to help employers choose and set up the right 401(k) structure.

Plan Documents & Adoption: Understanding the Basic Plan Document, Adoption Agreement, and Summary Plan Description (SPD).

Types of 401(k) Plans: Comparing Traditional 401(k), Safe Harbor (Non-elective vs. Matching), and Roth 401(k) features.

Eligibility & Participation:

Minimum age and service requirements (21 and 1 rule).

Entry dates and automatic enrollment (ACA, EACA, QACA) provisions.

Excludable employees (union members, non-resident aliens).

Employer Contribution Strategies: Calculating discretionary matches, fixed matches, and profit-sharing allocations.

II. Compliance & Regulatory Requirements

A critical portion of the exam focuses on the Internal Revenue Code (IRC) and ERISA rules that keep a plan "qualified."

Non-Discrimination Testing:

ADP (Actual Deferral Percentage): Testing employee deferrals.

ACP (Actual Contribution Percentage): Testing employer matching and after-tax contributions.

Top-Heavy Testing: Identifying if key employees hold more than 60% of plan assets.

Contribution & Benefit Limits:

IRC Section 402(g) elective deferral limits.

IRC Section 415 annual addition limits.

IRC Section 401(a)(17) compensation limits.

Vesting Schedules: Understanding cliff vs. graded vesting and the rules for immediate vesting in Safe Harbor plans.

III. Fiduciary Responsibility & Plan Governance

This section addresses the legal duties of those managing the plan and the protection of participant interests.

ERISA Fiduciary Roles: Identifying Named Fiduciaries, Trustees, and the difference between 3(21) and 3(38) investment fiduciaries.

Fiduciary Standards: The "Prudent Expert" rule, duty of loyalty, and diversification requirements.

Prohibited Transactions: Identifying parties-in-interest and avoiding self-dealing.

Fee Disclosure: Understanding 408(b)(2) disclosures (provider to sponsor) and 404(a)(5) disclosures (sponsor to participant).

IV. Plan Operations & Administration

Focuses on the day-to-day mechanics of managing participant accounts and data.

Reporting & Disclosure: * Filing Form 5500 (EZ, SF, or Large).

Distributing Summary Annual Reports (SAR) and Annual Funding Notices.

Participant Loans & Hardship Distributions: * Maximum loan amounts and repayment terms.

Safe Harbor "Heavy Financial Need" criteria for hardship withdrawals.

Trust Accounting: Reconciling plan assets, handling forfeitures, and understanding "true-up" contributions.

V. Investment Management & Oversight

Covers how plan assets are selected, monitored, and offered to participants.

Investment Policy Statement (IPS): The purpose, components, and ongoing review process of an IPS.

Qualified Default Investment Alternatives (QDIA): Criteria for Target Date Funds (TDFs), balanced funds, and managed accounts.

ERISA 404(c) Protection: Requirements for providing participant-directed investments to limit fiduciary liability.

VI. Distributions & Taxation

The final phase of the 401(k) lifecycle, focusing on how money leaves the plan.

Distributable Events: Retirement, termination of employment, death, and disability.

Taxation of Distributions: Standard 20% federal withholding, early withdrawal penalties (10% tax), and RMD (Required Minimum Distribution) rules.

Rollovers: Direct vs. Indirect rollovers and the impact on tax-deferred status.