Module 5 - Retirement Plan Division and Tax

Question 1

What is the Deferred Division or Future Share Method?

Answer 1

One of three methods used to divide pension benefits; no present value is determined

Question 2

Define a Defined Benefit Plan

Answer 2

Type of employer-sponsored pension plan that promises to pay a certain amount per month at retirement; no cash value today

Question 3

What does Double-Dipping refer to?

Answer 3

When one spouse is paid twice from the same asset

Question 4

What is the Employee Retirement Income Security Act of 1974 (ERISA)?

Answer 4

A federal law that sets minimum standards for pension plans in private industry; does not require employers to establish plans

Question 5

What does ERISA require from pension plans?

Answer 5

• Regular information provision to participants about plan features and funding
• Minimum standards for participation, vesting, benefit accrual, and funding
• Accountability of plan fiduciaries
• Right for participants to sue for benefits and breaches of fiduciary duty

Question 6

What is the role of the Pension Benefit Guaranty Corporation (PBGC)?

Answer 6

A federal corporation that announces monthly interest rates for calculating present value of pension plans; based on average annuity rates

Question 7

What is a Qualified Domestic Relations Order (QDRO)?

Answer 7

A court ruling earmarking a portion of retirement or pension fund payments to an ex-spouse as part of marital asset division

Question 8

What is Reserved Jurisdiction in pension benefit division?

Answer 8

One of three methods to divide pension benefits; court retains authority to order future distributions

Question 9

What did the Retirement Equity Act of 1984 (REA) amend?

Answer 9

Amended ERISA to introduce mandatory spousal rights in pension plans

Question 10

What is Section 72 of the IRS Code?

Answer 10

Allows alternate payee to receive money from a qualified plan without a 10% tax penalty, subject to ordinary income tax

Question 11

What does vesting mean in the context of retirement accounts?

Answer 11

Ownership; fully vested means 100% ownership of the account balance

Question 12

What does it mean if an employee is partially vested?

Answer 12

Entitled to a specified percentage of the employer’s contributions; employee contributions are always 100% vested

Question 13

What is the General Agreement on Tariffs and Trade (GATT) Rate?

Answer 13

Interest rate based on a 30-year Treasury bond interest rate, used as a benchmark for lump-sum distributions from defined benefit plans