7 - Foundations of 401(k) Plans Flashcards
In ____ Employers responded to the benefit planning opportunities created by Section 401(k), and significant 401(k) plan creation began.
1982
For determining “immediate and heavy financial need,” the following events are acceptable: (4)
- certain medical expenses by the employee,
- purchase of the employee’s home
- Payment of room and board, tuition and related educational fees for the next 12 months of postsecondary education
- prevent eviction or foreclosure
Elective contributions are considered as _____ for Social Security (and federal unemployment insurance) purposes. Thus, FICA taxes are paid on such amounts under the _______, and they are taken into account when calculating an employee’s Social Security benefits.
wages
taxable wage base
From an employer’s viewpoint, CODAs have all the advantages normally associated with any ______
employee benefit plan.
The treatment of elective contributions under state and local tax laws is ________
not completely uniform.
In _____ IRS issued proposed regulations governing CODAs.
1981
CODA disadvantages from the
- employer’s viewpoint:
- from employee’s viewpoint:
these plans involve complex and costly administration.
not as great
The ADP (Actual Deferral Percentage Test) test is a mathematical test that must be satisfied by the close of each plan year. The following steps are used in applying this test:
- Determine the ADP for each eligible employee (ADP = contribution deferred / compensation)
- Divide the eligible employees into two groups (highly compensated and not)
- avg ADP of these groups
______ are employer contributions made to allow a plan to meet requirements and avoid the need for AdP testing. they must be fully vested and are subject to distribution restrictions.
Safe harbor contributions
Qualified nonelective contributions (QNECs) are nonelective contributions to which two special rules apply:
- (1) the contribution must be ____ at all times, and
- (2) it generally may not be distributed to the employee on an in-service basis for any reason before the employee reaches the age of ____
- fully vested
- 591⁄2
The value of all elective and any after-tax employee contributions to a _____ must be fully vested at all times.
CODA
made many significant changes in the law related to defined contribution (DC) plans generally, with many of these changes having important implications for 401(k) plans.
The Pension Protection Act of 2006 (PPA)
______ are employer contributions made on behalf of eligible employees regardless of whether they have made elective deferrals.
Nonelective contributions
IRS has ruled that the inclusion (or exclusion) of _________ under a CODA as compensation in a defined benefit pension plan does not cause the pension plan to be discriminatory
elective contributions
The regulatory safe harbor for the second requirement that the withdrawal be necessary to satisfy the financial need includes four conditions:
- distribution must not exceed ________
- employee must have obtained all _____
- plan must provide that the employee’s elective and after-tax contributions will be suspended for at least ___ months after receipt of the distribution.
- The plan and all other employer plans must limit the employee’s elective contributions for ______
- the amount of the need.
- distributions
- six
- the calendar year
If excess contributions arise because of the ADP or ACP tests, there are several ways in which the problem can be addressed. (3)
- employer to make additional contributions necessary to satisfy the test requirements
- “recharacterize” the excess deferrals
- refund the excess contributions using the method prescribed in the regulations.