CH 3 - Preliminary Concerns

Question 1

What is the fact-finding process for helping an employer select the appropriate tax-advantaged retirement plan? (6)

Answer 1

1. Identify goals and objectives
2. Due diligence review
3. Coordinate with other advisors
4. Identify the company budget
5. Review the employee census
6. Identify related/affiliated companies

Question 2

What is the maximum annual benefit for a 415(b) defined-benefit?

Answer 2

the lesser of 100% of the highest consecutive 3-year average compensation or $215,000 with NO actuarial reductions between age 62-65, only before age 62 and after age 65.

Question 3

What is the maximum annual benefit for a 415(c) defined-contribution?

Answer 3

lesser of 100% of compensation or $54,000 with $6,000 catch-up

Question 4

annual additions = ________ + ________

Answer 4

employee/employer contributions + forfeitures

Question 5

415 Compensation = _______ + _______

Answer 5

W2 + salary deferrals

Question 6

The maximum deductible contribution for a DC plan is limited to ___% of the aggregate compensation of ALL covered participants.

Answer 6

25%

Question 7

All defined-benefit and defined-contribution plans of related employers are…

Answer 7

aggregated when applying the Code Sec. 415(b) limits for any given employee.

Question 8

What are the FIVE features of a DB plan?

Answer 8

• specifies the promised benefit (or % of compensation) that’s not portable
• unallocated funds
• past service
• Employer bears investment risk
• pre-retirement inflation

Question 9

What are the FIVE features of a DC plan?

Answer 9

• predictable cost
• individual accounts (eg - allocated funds)
• uncertain on benefits
• easy administration

Question 10

What are the rules for a defined-benefit plan? (5)

Answer 10

• 415(b) benefit limit
• Subject to PBGC
• Minimum participation and additional coverage rule
• Deduction limited by actuarial cost and tied to funding
• Longer vesting period

Question 11

What are the rules for a defined-contribution plan?

Answer 11

• 415(c) contribution limit
• Max deduction 25% of aggregate comp/payroll
• Shorter vesting periods

Question 12

What are the THREE rules for having a pension plan?

Answer 12

• No in-service withdrawal/distribution prior to 62
• 10% of assets in sponsor’s stock
• Required funding

Question 13

What are the rules for a Profit-Sharing plan?

Answer 13

• discretionary funding
• 100% invested in sponsor’s stock
• in-service withdrawals (2 years after contribution, 5 years of participation, or financial hardship)

Question 14

Keogh is sponsored by unincorporated entities. What is the deduction percentage limit for these owners?

Answer 14

20% not 25%

Question 15

A Keogh plan can reduce Schedule C by the…

Answer 15

social security deduction (1/2 of SS taxes).