CH 9 - Loans, Vesting, Top-Heavy Rules & Retirement Ages

Question 1

In general, loans are allowed in _________, but not _________.

Answer 1

a) qualified plans and 403(b) plans
b) SEPs, SIMPLEs

Question 2

Loans are generally allowed for certain types of DB plans. Those plans are _________ and _________ plans.

Answer 2

defined-benefit

and

cash-balance

Question 3

To avoid taxation, a loan must be “qualified”. What are the THREE requirements to be considered a “qualified loan”?

Answer 3

• Not exceed the lesser of $50,000 or 1/2 vested account balance
• Limit on loan amount is reduced by highest outstanding balance within the past 12 months
• 5-year payback with level amortization (exception for home mortgage)

Question 4

A loan default results in _______ and _______.

Answer 4

taxable income

and

72(t) penalty

Question 5

ERISA requires loans to be…

Answer 5

Reasonably available to all participants with a reasonable rate (eg - current market rate)

Question 6

How many loans can be administered at a time?

Answer 6

one loan at a time

Question 7

What happens if you took a loan then become terminated from your job?

Answer 7

The loan is due in FULL.

Question 8

How are the repayments of loans handled?

Answer 8

Through payroll deduction

Question 9

What are the vesting requirements for a DB plan and a DC plan?

Answer 9

• DB plans: 5-year cliff or 7-year graded
• DC plans: 3-year cliff or 6-year graded

Question 10

100% vesting required under what THREE senerios?

Answer 10

• normal retirement age
• for employee contributions
• plan terminations

Question 11

break in service = _______

Answer 11

less than 500 hours

Question 12

What happens if there is 5 consecutive a breaks in service…?

Answer 12

A permanent forfeiture of the non-vested portion.

Question 13

What is the participant vesting requirements applicable to qualified plans? Including exclusions.

Answer 13

• 1,000 hours-measure based on plan year
• Excluding participants under age 18 and those prior to inception of plan

Question 14

What is the normal retirement age?

Early retirement = _________

Latest retirement = _________

Answer 14

Early retirement = 62 and under must justify

Latest retirement = 65 and 5 years participation

Question 15

Early retirement provisions are _______.

Answer 15

voluntary

Question 16

In a deferred retirement, DC plans must _______ contributions.

Answer 16

continue

Question 17

Benefit accruals cannot be limited in DB plan, except a plan can…

Answer 17

limit maximum service (for example, 30 years)

Question 18

What is a top-heavy plan?

Answer 18

Where 60% of account balances are for KEY EMPLOYEEs.

This specifically applies to qualified plans and SEPs.

Question 19

Top-heavy plans must satisfy ________ and ________ rules.

Answer 19

contribution and vesting

Question 20

Who is a KEY employee? (3)

Answer 20

• 5% owner
• 1% owner earning $150,000
• Officers earning $175,000

Question 21

If a plan is considered top-heavy, what are the contribution rules for a DB and DC plan?

Answer 21

DB = 2% for each year of service (accrual up to 10 years or 20%)

DC = lesser of 3% contribution or highest percent for key employee

Question 22

What are the vesting rules for a top-heavy DB plan?

Answer 22

3-year cliff or 6-year graded (this is the same for a DC)