Chapter 8 - Installation, Administration and Termination of Qualified Plans

Question 1

Relevant issues with selecting plan type

Answer 1

Employee census
Employee turnover
Funding commitments
Plan costs

Question 2

Employee Census

Answer 2

Name
Age
Compensation
Ownership stake

Question 3

Plan selection step 1

Answer 3

Is plan sponsor willing to meet qualified plan requirements (contributions). If not SEP, SIMPLE

Question 4

Plan selection step 2

Answer 4

Prepare employee census and identify which employees benefit from plan choices (age based, social security integration)

Question 5

Plan selection step 3

Answer 5

Choose between mandatory funded pension plan and discretionary funded PSP

Question 6

Plan selection step 4

Answer 6

Choose the plan that best fits objectives of owner and organization

Question 7

Plan selection mandatory funding - Employer investment risk

Answer 7

Defined Benefit favors older participants but more expensive
Cash Balance Pension favors younger participants and less expensive

Question 8

Plan Selection Mandatory Funding - Employee Investment Risk

Answer 8

MPPP favors younger participants and less expensive
Target Benefit favors older participants but more expensive

Question 9

Plan Selection Discretionary Funding - Noncontributory

Answer 9

Company Stock -
ESOP - no integration
Stock Bonus Plan - integration
PSP - Integration
Cash Contributions -
PSP - Integration
Comparability plan
Age based PSP

Question 10

Plan Selection Discretionary Funding - Contributory

Answer 10

Contributions pre-tax - 401k plans
Contributions post tax-
Thrift Plan
401k Roth

Question 11

Types of written plans

Answer 11

Master or prototype plans
Volume Submitter Plan
Individually Designed Plan

Question 12

Master or prototype plan

Answer 12

Have been pre-approved by IRS
Master - one account for all adopting employers
Prototype - each employer has own account

Question 13

Volume Submitter Plan

Answer 13

Designed by a qualified plan specialist
Language pre-approved by IRS
More customization than Master or Prototype
Less costly than individualized plan

Question 14

Individually Designed Plan

Answer 14

Company has unique needs
Most expensive
Must contain all legally required terms and conditions
Determination letter from IRS recommended

Question 15

Notification to eligible employees

Answer 15

Present employees who are eligible to participate and employees not eligible but in the same location
In person 7-21 days before request to IRS and mailed 10-24 days before request to IRS
SPD within 90 days for existing plans and 120 days for new plans
Summary material modifications 210 days after end of plan year

Question 16

Contribution deadline

Answer 16

15th day after each quarter

Question 17

Contribution limits

Answer 17

DC - 25% of total compensation paid to all employees
DB - determined by actuarial computations

Question 18

Benefit statements

Answer 18

DC - must be provided quarterly to participants with self directed investments, annual statements to everyone else
DB - once every 3 years to vested participants, notice annually

Question 19

PBGC

Answer 19

Only covers defined benefit plans or cash balance plans

Question 20

Reporting requirements

Answer 20

File form 5500 with DOL due by last day of 7th month after plan year ends
No filing for plans with one participant or assets under $250,000

Question 21

Self employed contrbitutions

Answer 21

Maximum of $66,000 or 100% of compensation
Contributions for owner employees are allowed only if net income is positive

Question 22

Self employed contribution calculation

Answer 22

1. Figure self employment tax
2. Rate =Contribution rate to other participants/1+contribution rate to other participants
   3 Earned Income = Net self employment income minus 1/2 self employment taxes
3. Contribution = earned income x contribution rate

Question 23

Net self employment income

Answer 23

Earnings x 92.35%=net earnings subject to self employment tax
net earnings x 15.3 up to $160,200 + 2.9% over $160,200 = self employment tax

Question 24

Disqualified person

Answer 24

Plan fiduciary
Service providers
Plan sponsor
Owners/partners of plan sponsor
Family members of owners
Officers and directors of plan sponsor

Question 25

Penalty for prohibited transactions

Answer 25

15% excise tax on amount involved per year
100% additional tax if not corrected within taxable year
Paid by disqualified person

Question 26

DP termination categories

Answer 26

Standard
Distress
Involuntary

Question 27

Standard termination

Answer 27

Voluntary
Plan has fund to pay all promised benefits
PBGC permission required
Participants notified
Annuity is purchased to guarantee future payments

Question 28

Distress termination

Answer 28

Bankruptcy or reorganization
Business not viable without plan termination
PBGC takes over plan

Question 29

Involuntary termination

Answer 29

PBGC initiates termination when plan lacks assets to pay benefits currently due

Question 30

Plan decisions based on

Answer 30

Large companies
- business objectives
- remaining competitive in market place
- made by executives & HR
Small companies
- centered on owner’s business and personal objectives
- owner’s tax deferred savings is often primary

Question 31

Plan adoption date

Answer 31

Must be in writing and adopted by the due date of the company’s tax return plus extension

Question 32

Plan funding date

Answer 32

Must be funded by the due date of the company’s tax return plus extensions