Course 1: Plan Types Flashcards
A defined Contribution plan maintains an ____ ______ ______ for each participant.
Individual account balance
A ______ Contribution plan is also known as an individual ______ plan
Defined, Account
A defined contribution plan participant’s benefit is based solely on…
the value of the account balance
The defined contribution plan account balances reflect…
contributions, forfeitures and investment earnings allocated to the account during the employee’s period of participation
A participant’s account balance in a defined contribution plan represents…
His or her share of the value of the trust’s assets
When a participant takes a distribution of his or her account from a defined contribution plan, the amounts paid will be based on the value of the account balance…
at that time (or as of the most recent valuation date specified in the plan.)
The defined contribution plan account balance that will be available to provide benefits at retirement (or any distribution event) is…
not guaranteed, because fluctuations in the value of assets directly affect the account balance.
Because the size of a defined contribution plan participant’s benefit at retirement depends in part on the amount of investment returns experienced by the participant’s account,…
the participant is considered to bear the risk of investment loses
If a defined contribution plan’s investments do not earn as much as one would hope, the participant’s benefit will be ______.
Less
If the defined contribution plan earns more than anticipated, the participant’s benefit will be ______ than expected.
Better
Because of the link between investment returns and the ultimate benefit enjoyed by the participant, many defined contribution plans…
permit participants to direct the investments for their own accounts.
The law defines a defined benefit plan to be any plan other than a…
defined contribution plan
This means a defined benefit plan does not maintain ______ _______ to reflect the accrued benefits of the plan ______.
Account Balances, Participants
For defined benefit plans, the amount available to provide benefits at retirement is determined by…
a formula stated in the plan
A defined benefit plan must provide ______ ______ ______.
definitely determinable benefits
A defined benefit plan must define the ______ ______ and how benefits are accrued or earned ______ _____ _______.
Benefit Formula, under that formula.
The employer that sponsors a defined benefit plan is required to…
fund the plan sufficiently to provide benefits
Defined Benefit plan funding will come from ______ ______ and the ______ ______ that the contributions earn in the trust.
Employer Contributions, Investment returns
The risk of investment loss in a defined benefit plan is borne by the ______ ______.
Plan Sponsor
If the defined benefit plan’s investments earn better than expected, these earning will cover a…
greater share of the cost of the plan and the employer will contribute less.
If the defined benefit plans investments lose money or perform worse than expected, the employer…
will contribute more to make up the difference.
IRC 401(a)(4): provided that a plan is a qualified plan only if the ______ or the ______ provided under the plan do not discriminate in favor of _______. (Nondiscrimination testing)
contributions,benefits, HCEs
IRC 401(a)(8): A trust forming part of a ______ ______ plan shall not constitute a qualified trust under this section unless the plan provides that ______ must not be applied to increase the benefits any employee would otherwise receive under the plan. (Treatment of forfeitures)
Defined benefit plan, forfeitures
IRC 401(a)(9): All stock bonus, pension, and ______-______ plans qualified under section 401(a) and ______ contracts described in section 403(b) are subject to required minimum distribution rules. (Minimum Distributions)
Profit-Sharing, annuity
IRC 401(a)(11): A trust, which is part of a plan providing payment of benefits in any form of a ______ ______, shall not constitute a qualified trust unless plan provisions are met in section 417. (Provision and calculation of qualified joint and survivor annuity)
life annuity
IRC 415: A trust which is a part of a pension, profit-sharing, or stock bonus plan shall not constitute a qualified trust under section 401(a) if in the case of a defined benefit plan, the plan provides for the ______ ___ ______ with respect to a participant which exceed the limitation of subsection (b) (Annual Limitation)
payment of benefits
IRC 415: A trust which is a part of a pension, profit-sharing, or stock bonus plan shall not constitute a qualified trust under section 401(a) if in the case of a defined contribution plan, ______ and other additions under the plan with respect to any participant for any taxable year exceed the limitation of subsection (c). (Annual Limitation)
contributions
IRC 401(a)(26): A plan satisfies this paragraph (a) for a plan year only if the plan benefits at least the lesser of-
1) __ employees of the employer
2) __ percent of the employees of the employer
(Minimum Participation Test (applies only to defined benefit plans))
50, 40
IRC 411(a)(6): For purposes of paragraph (4), in the case of any participant in a defined ______ plan, or an insured defined ______ plan which satisfies the requirements of subsection (b)(1)(F), who has 5 consecutive 1-year breaks in service, years of service after such 5-year period shall not be required to be taken into account for purposes of determining the nonforfeitable percentage of his accrued benefit derived from employer contributions which accrued before such 5-year period.
(Five Year break-in-service rule under vesting requirements.)
Contribution, Benefit
IRC 416: A trust shall not constitute a qualified trust under section 401(a) for any plan year if the plan of which it is a part is a top-heavy plan for such plan year unless such plan meets:
- _______ requirements of subsection (b), and
2 the ______ ______ requirements of subsection (c)
(the manner of calculating top heavy minimum benefits)
Vesting, minimum benefit
IRC 404(a): Deduction for _______ of an employer to an employees’ trust or annuity plan and _______ under a deferred-payment plan
(different deduction rules based on defined benefit or defined contribution plan.)
Contributions, Compensation
Under treasury regulation relating to plan qualification, a ______ ______ is intended to provide for the livelihood of the employees or their beneficiaries after the retirement of such employees through the payment of benefits determined without regard to ______ ______
Pension plan, company profits
A pension plan is one that is: established and maintained by an employer primarily to provide ______ for the payment of _______ ________ _______ to his or her employees over a period of years, usually for life, after retirement.
systematically, definitely determinable benefits
Retirement benefits in a pension plan are generally measured by, and based on, such factors as ______ __ ______ and _______ received by the employees.
Years of Service, Compensation
The first major requirement is for a pension plan to have ______ ______ ______ -there must be either a formula for determining the participant’s benefit at retirement or a definite formula for determining a company’s annual contribution to the plan.
definitely determinable benefits
Defined benefit plans, money ______ plans and target _______ plans are always ______ plans
Purchase, benefit, Pension
Although the ultimate retirement benefit is not definite in a money ______ plan or a target ______ plans, these plans are deemed to satisfy the definitely determinable benefits rule because the employer’s annual contribution is predetermined by a formula outline by the plan.
Purchase, Benefit
Plans that have a predetermined formula allow for an employer’s contribution to be determinable and a benefit can be projected to ______ ______ ______ (NRA) based on the assumption that the contribution formula will continue to apply in future years,
Normal Retirement Age
The actual _______ ______ of the trust’s assets will affect the value of the account balance and, in turn, the ultimate benefit payable from the plan.
Investment experience
The second major requirement for a pension plan is that it may not permit __-______ ______ of benefits except after the participant has attained age 59 ½ or NRA. Therefore, pension plans may not provide for withdrawals to participants on the occurrence of a _______ or upon a stated event or the simple passage of time.
In-Service Withdrawal, hardships
______ ______ do not have to satisfy the definitely determinable benefits requirement.
Nonpension plans
There are two types of nonpension plans:
- profit-sharing plans
- Stock bonus plans
_______ ______ plans are nonpension plans because they are classified as either profit-sharing plans or stock bonus plans.
Section 401(k)
Nonpension plans must provide for a ______ _______ ______ which outlines the method by which the employer’s contributions is allocated among the plan participant’s accounts once the contribution is made to the plan.
definite allocation formula
A ______-______ ______ is a defined contribution plan under which the employer’s contribution each year may be determined at the employer’s discretion.
Profit-sharing plan
No contribution is mandatory, although contributions over the years must be ______ and ______.
recurring and substantial
A ______ ______ ______ is a defined contribution plan under which the benefits are distributable in employer stock (essentially the same as a profit-sharing plan, except that it is designated as a ______ _______ _______ and becomes subjet to certain IRC requirements that are applicable to only this plan type.
Stock Bonus Plan, Stock Bonus Plan
______ ______ ______ maintain an individual account balance for each participant. A participant’s benefit is based ______ on the value of the account balance.
Defined Contribution Plans, Soely
The account balance of a defined contribution plan will reflect ______, ______, and ______ ______ allocated to the account
contributions, forfeitures, and investment earnings
Because the size of a participant’s benefit at retirement depends in part on the amount of ______ ______ experienced by the participant’s account, the ______ is considered to bear the risk of investment.
Investment returns, participant
Beause of the direct link between investment returns and the ______ ______ enjoyed by the participant, many defined contribution plans permit participants to direct the ______ of their own accounts.
Ultimate benefit, investments
Money Purchase Plans are less popular because they:
-Have _______ employer contributions
-Have more restrictive ______ rules than 401(k) plans
-Cannot permit ______ ______
mandatory, distribution, elective deferrals
Money Purchase Plans are required to have:
-A ______ contribution requirement for determining the company’s annual contribution to the plan
definite
Money Purchase Plans are required to have:
-May permit distribution only upon retirement, death, disability, termination of employment, and in-service distributions made to a participant who have reached age ____ (for plan years prior to 2020, age provision was ___)
59 1/2, 62
Money Purchase Plans are required to have:
-The _______ formula may differ from the _______ formula but the total for each must be the same
Allocation, Contribution
Money Purchase Plans are required to have:
- Must comply with the ______ ______ ______, meaning the plan sponsor is required to make certain contributions and is subject to excise taxes if it does not do so
Minimum Funding Requirements
Money Purchase Plans are required to have:
- Required to comply with the qualified joint and survivor annuity rules, meaning distributions must be paid as an ______ unless the participant and spouse consent to an alternative form of payment.
Annuity
Money Purchase are a benefit to:
-______ who want the obligation to make a contribution so this can be communicated to employees
-______ and ______ ______ of employees that negotiate benefits want the certainty of a contribution for their members.
Employers, Union and other classes