6 - Profit-Sharing Plans and Money Purchase Plans Flashcards
While the internal revenue service does not require a profit-sharing plan to include a definite contribution formula for qualification, it is necessary that a profit-sharing plan include a _________ to become qualified
definite allocation formula
The maximum deductible contribution for profit-sharing plans is ________ or otherwise accrued during the employer’s taxable year for years beginning after 2001 as a result of the ______
25% of the compensation paid
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
Are money purchase pension plans required to provide the joint-and-survivor options?
Yes
may profit-sharing plan participants withdraw any portion of their vested benefits in the plan prior to separation from service with their employer?
Yes - but accumulations cannot be distributed in less than two years
If a profit sharing plan is terminated (by the employer), all assets in the fund _____
vest immediately for the plan participants.
if a money purchase pension plan involves after-tax employee and matching employer contributions, an ________ test must be satisfied each year in accordance with the terms of irc section 401(m).
actual contribution percentage (ACP)
Employee loans are treated as taxable distributions unless (4) requirements are met.
- amount of the loan
- the agreement concerning loan terms
- repayment period
- employee’s vested interest and account balance
Are employees permitted to take loans or to receive distributions from their money purchase pension plan accounts while still working for the plan sponsor (employer)?
no (at least it is very unusual)
Defined benefit plans generally are prohibited from having more than ____ of their assets invested in qualifying employer securities.
10%
Employee forfeitures occur in a profit-sharing plan when employees terminate with ______
less than full vesting.
Because they technically are pension plans, money purchase plans are treated for many purposes as _____
In other ways though, they are treated as defined contribution arrangements. ______ must be maintained for employees; the plans are subject to the _______ of Section 415 of the IRC; and they are not subject to the plan ______ provisions of Title IV of ERISA.
- defined benefit plans
- Individual accounts
- annual addition limits
- termination
Money purchase plans have many of the same basic characteristics that are found in all ________
Some of the more specific or typical characteristics of money purchase plans are as follows:
- (a) In establishing the plan, the employer agrees to make a ______ each year for each eligible employee.
- (b) The plan may require employees to make contributions to participate. If so, these contributions can be made only from _______—that is, salary reductions or elective deferral contributions cannot be made under a money purchase plan.
- (c) Both employer and employee contributions are transferred to a ______ (or an insurance company under a group annuity type of contract), where they are invested on behalf of the employees.
- (d) _______ are established for participating employees. Each is credited with employer and employee contributions, reallocated forfeitures (if applicable), and its proportionate share of investment gains and losses.
- (e) Employees frequently are given a choice of several investment funds in which to invest their account balances.
- (f) An employee’s benefit, at any given time, is whatever can be provided by his or her ______ at that time.
- (g) The employee’s account balance (even if not otherwise vested) usually is payable in full in the event of _______
(important)
defined contribution plans
- fixed contribution
- after-tax income
- trustee
- Individual accounts
- vested account balance
- the employee’s death.
The discretionary approach to making contributions to a profit-sharing plan is advantageous in that it provides _______
contribution flexibility.
The advantages of using a definite predetermined formula (for profit sharing plan) are that such a formula raises _______ and _______
employee morale and feelings of security
is a definite predetermined contribution formula required in a profit-sharing plan in order for the plan to be qualified under the irc?
no