Question

In 2020, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee contributes. The maximum employer contribution under the plan is 15 percent of the employee’s salary (if allowed, YBU contributes until the employee has contributed 30 percent of her salary). (Use Exhibit 13-2) a. Maggy worked for YBU Corporation for 3½ years before deciding to leave effective July 1, 2020. Maggy’s annual salary during this time was $45,000, $52,000, $55,000, and $60,000 (she only received half of her $60,000 2020 salary). Assuming Maggy contributed 8 percent of her salary (including her 2020 salary) to her 401(k) account, what is Maggy’s vested account balance when she leaves YBU (exclusive of account earnings)? Assume YBU uses three-year cliff vesting

Answer 1

Maggy’s vested account balance when she leaves YBU assume YBU uses three-year cliff vesting is: $21,840; $2,912.

Vested account balance

a. Vested account balance

First step

Maggy contribution=[($45,000+$52,000+$55,000)+($60,000×50%)]

Maggy contribution=($152,000+$30,000)×8%

Maggy contribution=$182,000×8%

Maggy contribution=$14,560

Second step

YBU contribution=$14,560×50%

YBU contribution=$7,280

Third step

Vested account balance=$14,560+$7,280

Vested account balance=$21,840

b. Vested account balance

First step

Maggy contribution=[($45,000+$52,000+$55,000)+($60,000×50%)]

Maggy contribution=($152,000+$30,000)×8%

Maggy contribution=$182,000×8%

Maggy contribution=$14,560

Second step

YBU contribution=$14,560×50%

YBU contribution=$7,280

Third step

YBU contribution  to maggy plan is 40%

Vested account balance=$7,280×40%

Vested account balance=$2,912

Therefore Maggy’s vested account balance when she leaves YBU assume YBU uses three-year cliff vesting is: $21,840; $2,912.

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