CH 9 - Loans, Vesting, Top-Heavy Rules & Retirement Ages Flashcards
In general, loans are allowed in _________, but not _________.
a) qualified plans and 403(b) plans
b) SEPs, SIMPLEs
Loans are generally allowed for certain types of DB plans. Those plans are _________ and _________ plans.
defined-benefit
and
cash-balance
To avoid taxation, a loan must be “qualified”. What are the THREE requirements to be considered a “qualified loan”?
- 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)
A loan default results in _______ and _______.
taxable income
and
72(t) penalty
ERISA requires loans to be…
Reasonably available to all participants with a reasonable rate (eg - current market rate)
How many loans can be administered at a time?
one loan at a time
What happens if you took a loan then become terminated from your job?
The loan is due in FULL.
How are the repayments of loans handled?
Through payroll deduction
What are the vesting requirements for a DB plan and a DC plan?
- DB plans: 5-year cliff or 7-year graded
- DC plans: 3-year cliff or 6-year graded
100% vesting required under what THREE senerios?
- normal retirement age
- for employee contributions
- plan terminations
break in service = _______
less than 500 hours
What happens if there is 5 consecutive a breaks in service…?
A permanent forfeiture of the non-vested portion.
What is the participant vesting requirements applicable to qualified plans? Including exclusions.
- 1,000 hours-measure based on plan year
- Excluding participants under age 18 and those prior to inception of plan
What is the normal retirement age?
Early retirement = _________
Latest retirement = _________
Early retirement = 62 and under must justify
Latest retirement = 65 and 5 years participation
Early retirement provisions are _______.
voluntary
In a deferred retirement, DC plans must _______ contributions.
continue
Benefit accruals cannot be limited in DB plan, except a plan can…
limit maximum service (for example, 30 years)
What is a top-heavy plan?
Where 60% of account balances are for KEY EMPLOYEEs.
This specifically applies to qualified plans and SEPs.
Top-heavy plans must satisfy ________ and ________ rules.
contribution and vesting
Who is a KEY employee? (3)
- 5% owner
- 1% owner earning $150,000
- Officers earning $175,000
If a plan is considered top-heavy, what are the contribution rules for a DB and DC plan?
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
What are the vesting rules for a top-heavy DB plan?
3-year cliff or 6-year graded (this is the same for a DC)
