Course 2: Plan Qualifications Flashcards
______ ______ plans are afforded favorable tax treatment, including tax deductible contributions, deferral of taxation to the employee, favorable tax treatment on distributions to employees and tax deferred investment earnings on plan assets.
Qualified retirement plans
Qualified plans must satisfy certain requirements set forth in the ______ ______ Code (IRC) and _______ _______.
Internal Revenue Code, Treasury Regulations
The body of law that governs retirement plans is the ______ ______ _______ _______ ___ of 1974 (ERISA)
Employee Retirement Income Security Act
ERISA is made up of four sections:
-The DOL, its administrative agency, the ____, the Department of the Treasury and its administrative agency, the ___
EBSA, IRS
Jurisdiction over the tax issues and qualification for the various tax benefits of being a qualified plan is given to the ______ and the ___.
Treasury, IRS
Jurisdiction over protecting participants’ rights and governing fiduciary behavior is granted to the ___ and ____
DOL, EBSA
ERISA Title I: contains the _____ ___ ______ of ERISA. This includes the minimum standards for eligibility, ______ and funding. Reporting and disclosure rules and _______ standards are also prescribed by Title I.
labor law provisions, vesting, fiduciary
ERISA Title I: The ______ provisions empower the DOL, participants, _______, and the plan fiduciaries to enforce the Title I requirements and to seek redress for ______.
enforcement, beneficiaries, violations.
ERISA Title II: contains the ___-_______ provisions of ERISA that amended the IRC sections relating to qualified plans. This includes provisions that parallel the Title I minimum standards for ______, vesting and funding.
tax-related,eligibility
ERISA Title II: contains sections that relate solely to the tax aspects of qualified plans and do not have _______ _____ in Title I (coverage rules, limitations under 415 and ___-_____ rules under 416
parallel provisions, top-heavy
ERISA Title III: Includes the _______ provisions of ERISA that divide enforcement responsibilities between the IRS and ___.
Administrative, DOL
ERISA Title IV: Established the _______ _______ _______ _______ (PBGC), which provides an insurance program for defined benefit plans. Under certain circumstances the PBGC will pay _______ _______ to participants on behalf of a defined benefit plan that terminates without sufficient assets to fulfill all benefit liabilities.
Pension Benefit Guaranty Corporation, guaranteed benefits
ERISA Title IV: Contains procedures that must be followed by a sponsor of a defined _______ plan when the plan terminates. Congress assigned responsibility to the PBGC for maintaining the defined benefits for ____ participants. Congress later expanded that responsibility to include defined contribution plan ____ participants.
benefit, lost, lost
The Internal Revenue Code (IRC) 401(a) requirements must be satisfied in form and in ______.
operation
Compliance in form means the plan document includes the relevant provisions of IRC 401(a). Treas. Reg. 1.401-1(a)(2) requires the plan to be a ______ ______ ______
definite written program
Failure to satisfy the ____ requirement is grounds for _______, even if the plan is operated properly.
Form, disqualification
Plan document violations may be corrected within a certain time frame, called the ______ ______ period.
remedial amendment
If the remedial amendment has expired, the problem may be resolved under the ______ ______ with IRS ______ ______ (VCP), which is part of the IRS’s Employee Plans Compliance Resolution System (EPCRS), an articulated program under which the plan sponsor may correct _______ problems.
Voluntary Correction, Approval Program, Qualification
All the requirements to be a ______ plan are described or _____-_______ in IRC 401(a).
qualified, cross-referenced
______ plans and nonelecting church plans (i.e. church plans that have not elected to be covered by ______ of ERISA) are exempt from several of the IRC 401(a) requirements.
Governmental, Title I
IRC 401(a)(1) (Plan must be for ______)
The qualified plan must be for the ______ of the employer. ______ ______ may not be covered by the plan. The term “employee” includes self-employed individual of a sole proprietorship or ______. For the rules to be met, the plan must be sponsored by an ______.
Employees, employees,Independent Contractors, partnership, employer
IRC 401(a)(1) (Assets must be held in trust)
A trust is a separate _____ ______ that holds title to assets set aside on behalf of beneficiaries. The written trust document outlines who is entitled to benefit from _____ ______. The trust is administered by a trustee, who is responsible for safeguarding and investing the funds for the _______.
Legal entity, trust assets, beneficiaries.
IRC 401(a)(2) (Exclusive Benefit Rule)
A plan must be maintained for the exclusive benefit of the _____ and their ______. This rule is known as the exclusive benefit rule. It prohibits the employer from diverting the assets for its own ______.
participants and their beneficiaries, benefit.
IRC 401(a)(2) (Exclusive Benefit Rule)
Under certain circumstances, an employer may receive a return of ______ made to the plan. In addition, the payment of ______ from the plan, although not provided benefits to the plan ______, is permissible under the exclusive benefit rule, as long as the ______ are reasonable to relate to administrative or fiduciary operations of the plan.
contributions, expenses, participants, expenses
IRC 401(a)(2) (Exclusive Benefit Rule)
An _______ instance of imprudent investment activity does not alone create a ______ of the exclusive benefit rule.
Isolated, violation
When the employer contributes to the plan, the contribution is ______. If the employer could take back the contribution, the participants’ ______ ______ would be compromised.
irrevocable, accrued benefits
Under specific circumstances, a return of contributions to the employer is permissible. Contributions me be returned if:
-the contributions are made under a _______ __ ____;
-there is a ______ of the deduction taken for contributions or
-contributions are made to a plan that fails to initially qualify under ______.
Mistake of Fact, disallowance, IRC 401(a)
If there is a mistake of fact or a disallowance of deduction, the contributions must be returned no later than __ months after the mistake or disallowance. (Different rules apply to ______ plan)
12 months, multiemployer
______ on the contributions may not be returned if the reversion is due to a mistake of fact or disallowance of deduction. If there has been a net investment ____ on the contributions, the amount returned must be reduced by the amount of such ____.
Earnings, loss, loss
In the case of a _____ due to initial disqualification of the plan, the entire assets of the plan are subject to ______, including any earning on contributions that have been made prior to the issuance of the ______ ______ ______.
Reversion, reversion, adverse determination letter
The IRS has not ______ a mistake of fact. In ______ ______ ruling, the IRS suggested that only ______ or _______ will fall into this category. Merely because a contribution by the employer is not currently deductible (deduction limit failures) does not make the contribution a mistake of fact.
defined, Private Letter,mathematical or typographical
The IRS interprets a ______ __ ______ to mean that the IRS actually must ______ a deduction claimed by the employer, not that the employer determines its contribution is not deductible. If the amount of the nondeductible contributions is $25,000.00 or less, the nondeductible amount may be returned without having to obtain and IRS ______.
disallow of deduction, disallow, ruling.
A reversion for failure to initially qualify is applicable only if the plan fails to qualify ______ to its original effective date. In such case, all plan assets may revert to the ______. The following conditions must be satisfied:
1. Contributions to the plan are ______ on obtaining initial qualification.
2. The plan receives an ______ ______ letter with respect to its initial qualification; and
3. The ______ ___ _ _______ letter is filed within the applicable remedial amendment period that applies to the initial plan year.
retroactive, employer, conditioned, adverse determination, application for a determination
If the plan amended after it receives its ______ ______ letter and such amendment causes the plan to become disqualified, there are no exceptions. An employer might use this exception to ______ the adoption of a plan that is inappropriate for the employer. If the plan is ______ submitted for its ______ ______ letter, and an ______ ______ is made, the employer may have the entire fund reverted and no benefits are owed to the participants (other than contributions made by the participants.)
initial qualification, reverse, timely,initial determination, adverse determination
A plan may pay expenses relating to ______ ______ of administering the plan, included investment management or trustee fees, ______ _____and reporting and disclosure expenses incurred by the plan.
reasonable expenses, recordkeeping fees
A qualified plan may not impose ___ and _______ requirements that are more stringent than those permitted by IRC 410(a). A qualified plan must also cover a fair cross-section of employees, demonstrated by satisfying the ______ _____ requirements under IRC 410(b).
age and service, minimum coverage
A qualified plan must not ______ in favor of highly compensated employees (___). Special ______ testing rules are prescribed by IRC 401(k) and IRC 401(m) for ______ ______, matching contributions and _____-___ employee contributions.
discriminate,HCEs,nondiscrimination, elective deferrals, after-tax
The IRC 401(k) ______ test (the ______ ______ ______ or ADP test) applies to elective deferrals (both pre-tax and designated Roth) under a 401(k) arrangement.
nondiscrimination, Average Deferral Percentage
The IRC 401(m) nondiscrimination test (the ______ ______ ______or ACP Test) applied to _____-___ employee contributions and to employer ______ contributions.
Average contribution percentage, after-tax, matching
A plan must satisfy the ______ ______ ______ under IRC 411, which includes vesting schedule requirements, ______ and break-in-service rules and vesting requirements for partial or complete ______ of a plan.
minimum vesting standards, forfeiture, termination
Other ______ requirements found in IRC 411 include ______ requirements for certain plan distributions and the prohibition against the ______ of benefits by amendment (known as the ____-_____ rule.)
qualification, consent, reduction, anti-cutback
A qualified plan must commence the payment of benefits no later than the ______ ______ date prescribed by IRC 401(a)(9), which is wholly or partly determined by when the employee attains age 72 (70 1/2 prior to 2020)
required beginning
IRC 401(a)(10) requires a qualified plan to satisfy special ______ and ______ requirements if the plan is top-heavy
vesting and accrual
IRC 401(a)(11) requires a qualified plan to provide a qualified joint and ______ ______ (QJSA) to a participant unless certain notice and consent requirements are satisfied. Most profit-sharing plans, stock bonus plans and 401(k) plan are ___ subject to this requirement
survivor annuity, not
IRC 401(a)(12) certain requirements for protecting benefits must be satisfied in a ____ _____ or in a transfer of plan assets and ______.
Plan merger, liabilities
IRC 401(a)(13) protects a participant’s accrued benefit from ______ or ______. This is called the ______ rule and the protection extends to ______, levy, execution or other legal or equitable process by the participant’s creditors. The _____ assets are also protected from the employers creditors because the ____ assets are held exclusive for benefit of the participants and their beneficiaries and not part ot the ______ general assets.
assignment or alienation, antiassignment, garnishment, trust, trust, employers
The law and regulations provide for some exceptions to the ______ rule:
-Federal tax levies;
-Participant _____;
-QDROs;
-Certain ______ assignments; and
-offset of participants benefit for fiduciary _____
Antiassignment, loans, voluntary, breach
A qualified plan must not postpone the ______ of benefits later than the date provided in IRC 401(a)(14) with the employee’s consent.
commencement