Chapter 3 - Vesting and Plan Limits Flashcards
Vesting
when an employee receives ownership of an ERs contributions to a retirement plan
Cliff Vesting
EE gets full rights to an ERs contributions after the passage of a certain 3 of years of service (usually 3)
Graduated Vesting
EE gets full rights of a certain % of benefits each year and an additional % is added on each year until it reaches 100% (usually 2-6 yr)
Defined benefit vesting rules
typically 3-7yr graduated or 5yr yr cliff vesting
Defined benefit vesting rules for top-heavy plans
2-6yr graduated or 3 yr cliff vesting
Vesting rules for cash balance-defined benefit plans
typically 3 yr cliff vesting
A defined benefit plan is top-heavy when
PV of total accrued benefits of key EEs > 60% of PV of total benefits of all EEs
A defined contribution plan is top-heavy when
aggregate acct balances of key EEs > 60% of aggregate acct balances of all EEs
What is a key EE
5% owner
1% owner with pay > $150,000 per yr
Officer with compensation > $200,000
Plan Limits are
limits put in place by the government on how large an employee benefits plan can be
Covered compensation limit for DB
the lesser of 100% of EE salary average or $245,000
Covered compensation limit for DC
$305,000
Contribution limit (both DB and DC)
lesser of 100% of EE contribution or $61,000 (including ER contribution, allocated forfeitures)
Multiple plan limit
Contribution limit when a plan has DB and DC.
The total amount deductible is the greater of 25% of ER compensation OR the minimum funding requirement
When do multiple plan limitations NOT apply?
if noone is in both plans
if DB is not subject to PBGC rules
if plan is multi employer
if salary deferrals are not considered
if contributions do not exceed 6% of total plan contribution
