What is one of the minimum coverage tests for qualified retirement plans?

The average benefits percentage test is a crucial minimum coverage test for qualified retirement plans. This test is designed to ensure that the benefits provided by the plan do not disproportionately favor highly compensated employees over lower-paid employees. It evaluates the average percentage of benefits accrued for different groups within the workforce.

In essence, the average benefits percentage test compares the average benefits provided to the non-highly compensated employees with those provided to the highly compensated employees. If the test is passed, it indicates that the retirement plan meets the necessary legal requirements for coverage and is designed to be equitable across various employee income levels. This is an important aspect of ensuring that retirement plans are fair and compliant with federal regulations.

Each of the other options relates to different aspects of retirement plans or tests, but do not specifically represent one of the minimum coverage tests recognized for qualified plans in the same way that the average benefits percentage test does. Understanding this concept is essential because it helps ensure that all employees, regardless of their compensation level, have equitable access to retirement plan benefits.