. The following table shows the five employees of the law firm of Tayka, Mooney & Ruhn, plus some information about each.

Employee	Age	Salary	Position
Tayka	37	$210,000	Partner
Mooney	34	$160,000	Partner
Ruhn	28	$110,000	Partner
Davies	38	$60,000	Associate
Edmundsen	27	$40,000	Paralegal

a. Rollings Consultants explain to the owners of Tayka, Mooney & Ruhn the problems that may occur with 401(k) plans. They show an example of how the company can fail the ADP test and how highly paid employees would not be able to take all the deductions they want. Pretend you are the Rollings consultant. Show such an example and give the firm some methods to overcome this problem. Use the table above to calculate an example and explain your answer.

Answer:

In 2018 the maximum allowable compensation is $275,000;

Tayka, Mooney, and Ruth contributes $18,500;

Davies contributes $3,000;

Mooney contributes $2,000;

	(1)	(2)	(3)	(4)	(5)
Employees	Current Age	Salary	Allowable Compensation	Voluntary 401(k) Contribution	Contribution As a Percentage of Compensation (4)/(3)
Tayka	37	$	$	$
Mooney	34	$	$	$
Ruhn	28	$	$	$
Davies	38	$	$	$
Edmundsen	27	$	$	$
ADP Test 1:
ADP Test 2:

b. If the company decides to start a profit-sharing plan with $35,000 the first year, how much will be allocated to each employee?

Answer:

Assuming that the maximum allowable compensation is $275,000 in 2018;

	(1)	(2)	(3)	(4)	(5)
Employees	Current Age	Salary	Allowable Compensation	Percentage of Pay from Total Adjusted Payroll (3)/570,000	Allocation of $35,000 Profits (4) 35,000
Tayka	37
Mooney	34
Ruhn	28
Davies	38
Edmundsen	27
Total