401(k) Plan

B is correct. To receive the full employer match, Marcus should contribute 5% of his salary ($120,000 × 5% = $6,000). The employer match calculation: 100% match on first 3% = $120,000 × 3% × 100% = $3,600. Then 50% match on next 2% (from 3% to 5%) = $120,000 × 2% × 50% = $1,200. Total employer match = $3,600 + $1,200 = $4,800.

A is incorrect because contributing only 3% would leave $1,200 in employer match on the table. Marcus is currently contributing 4%, so he should increase to 5%, not decrease to 3%. C is incorrect because it assumes a 100% match on the full 5%, but the formula only provides 100% match on the first 3%, then 50% on the next 2%. D is incorrect because contributing more than 5% does not increase the employer match. The match formula caps at 5%, so contributions above 5% receive no additional employer contribution. While Marcus could contribute up to $23,500 (2025 limit), the employer match maxes out at $4,800 when he contributes 5%.

C is correct. For 2025, participants age 50 or older can contribute up to $31,000 to their 401(k) plans. This consists of the base contribution limit of $23,500 plus a $7,500 catch-up contribution for those age 50 and older.

A ($7,500) is incorrect because this is only the catch-up contribution amount for those age 50+, not the total contribution limit. B ($23,500) is the base employee contribution limit for those under age 50, but it does not include the catch-up contribution available to those 50 and older. D ($69,000) is the total combined limit for all contributions (employee deferrals + employer match + profit sharing) for participants under 50, not the employee-only contribution limit.

C is correct. Jennifer is 55 years old, so she can contribute the maximum employee contribution of $31,000 for 2025 ($23,500 base + $7,500 catch-up). Her employer contributes 3% of salary: $180,000 × 3% = $5,400. Total contribution = $31,000 (employee) + $5,400 (employer) = $35,900.

A ($28,900) incorrectly calculates the employee contribution as only $23,500 (forgetting the $7,500 catch-up) and adds the employer contribution: $23,500 + $5,400 = $28,400. This is close but wrong due to missing the catch-up. B ($31,000) only includes Jennifer's employee contribution and forgets to add the employer contribution. D ($76,500) is the maximum total contribution limit for 2025 for those age 50+, but the question asks for the actual total contribution based on Jennifer's salary and the employer's formula, not the regulatory maximum. While Jennifer could receive up to $76,500 in total contributions if her employer contributed more, the actual amount based on the given formula is $35,900.

B is correct (the EXCEPT answer). Employer matching contributions do NOT count toward the employee contribution limit. The $23,500/$31,000 limit applies only to employee salary deferrals. Employer contributions are tracked separately and count toward the much higher total contribution limit ($69,000/$76,500 for 2025). This is a critical distinction that allows employees to receive both their full contribution and unlimited employer matching (up to the total limit).

A is accurate: Traditional 401(k) salary deferrals are made with pre-tax dollars, reducing taxable income in the contribution year. For example, if an employee earning $100,000 contributes $15,000, their W-2 taxable income is reduced to $85,000. C is accurate: participants who are age 50 or older by December 31 of the tax year can contribute an additional $7,500 catch-up contribution in 2025 (on top of the $23,500 base limit). D is accurate: employee contributions are governed by ERISA rules requiring immediate 100% vesting. However, employer matching contributions may be subject to vesting schedules (cliff or graded vesting over up to 6 years).

B is correct. Statements 1, 3, and 4 are accurate.

Statement 1 is TRUE: Employee salary deferrals are always 100% vested immediately under ERISA requirements. The employee contributed $60,000 of his own money, which is fully his regardless of when he leaves the company.

Statement 2 is FALSE: While $50,000 is the general maximum loan amount, the actual maximum is the LESSER of $50,000 OR 50% of the vested balance. Since his vested balance is only $48,000, the maximum loan is $24,000 (50% of $48,000), not $50,000. This is a critical distinction.

Statement 3 is TRUE: The maximum loan amount is the lesser of $50,000 or 50% of vested balance. 50% of $48,000 = $24,000. Even though the $50,000 limit exists, it does not apply here because 50% of vested balance ($24,000) is less than $50,000.

Statement 4 is TRUE: The employee has been with the company for 3 years. Under a 6-year graded vesting schedule (20% per year), he is 60% vested in employer contributions after 3 years. The employer contributed $18,000, so he is vested in $10,800 (60% of $18,000). The remaining $7,200 (40%) is unvested and would be forfeited if he terminates employment. Combined with his $60,000 in employee contributions, his total account value is $78,000, but his vested balance is only $70,800 ($60,000 employee + $10,800 vested employer match). However, the question states his vested balance is $48,000, which suggests account losses or the need to use the given number for the loan calculation.