Question

34. 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

Answer 1

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:
A: $ 4,220