Plan design considerations

Question 1

What does ERISA stand for?

Answer 1

Employee Retirement Income Security Act

ERISA was designed to ensure the security of company pension plans.

Question 2

What year was the Employee Retirement Income Security Act (ERISA) enacted?

Answer 2

1974

Question 3

What event highlighted the need for ERISA?

Answer 3

The closing of the Studebaker auto plant in 1963

Question 4

What is the role of the U.S. Department of Labor (DOL) in relation to ERISA?

Answer 4

Administration and enforcement of ERISA

Question 5

What does the Internal Revenue Code (IRC) refer to?

Answer 5

Tax laws passed by Congress and administered by the IRS

Question 6

How does the Internal Revenue Code (IRC) relate to retirement plans?

Answer 6

It stipulates retirement plan rules and regulations that must be complied with

Question 7

What agency enforces the provisions of the Internal Revenue Code (IRC)?

Answer 7

Internal Revenue Service (IRS)

Question 8

What is the Pension Protection Act (PPA)?

Answer 8

The most comprehensive pension reform legislation since ERISA

Question 9

In what year was the Pension Protection Act (PPA) created?

Answer 9

2006

Question 10

What is significant about the Pension Protection Act (PPA)?

Answer 10

It is the largest piece of legislation in more than 30 years affecting employer pension plans

Question 11

Fill in the blank: The U.S. DOL is responsible for the administration and enforcement of _______.

Answer 11

ERISA

Question 12

True or False: ERISA was created to protect workers from losing their pensions.

Answer 12

True

Question 13

List the three main regulations that dictate retirement plan design components.

Answer 13

• ERISA
• Internal Revenue Code (IRC)
• Pension Protection Act (PPA)

Question 14

How was compensation defined in retirement plans?

Answer 14

All wages, salaries and other amounts received, including overtime Bonnes commissions tips includes pre-tax contributions

Question 15

Define highly compensated employees

Answer 15

5% owners or those who earned more than the annually index compensation limit for HCE’s in the preceding year or at the election of the employer and are in the top 20% of employees one ran by compensation

Question 16

What are the six design components of defined contribution plans?

Answer 16

Credited service
Eligibility
Enrollment
Contributions
Vesting
Distributions

Question 17

How was credited service typically calculated

Answer 17

Credited hours instead of elapsed time

Using a lapsed time, makes it difficult to separate part time from full-time

Question 18

When do the minimum participation rules include eligibility for a defined contribution plan

Answer 18

Within six months and Age 21 and one year of service

Two years of service if immediate vesting, (except 401(k)

Question 19

Who can be excluded from participation in defined contribution retirement plans?

Answer 19

Certain groups covered under collective bargaining agreements, and nonresident aliens

Question 20

What is a reason that a company may limit participation of employees to 21 and maximum limits allowed under the regulation

Answer 20

May help pass non-discrimination, testing challenges

Question 21

What are the four types of employee contributions to a defined contribution plan?

Answer 21

Pretax
Post tax
Catch up
Roth

Question 22

Are employee deferrals (contributions) included as income for FICA purposes?

Answer 22

Yes

Question 23

In a pre-tax contribution to a qualified plan how do taxes impact contribution growth overtime?

Answer 23

Both the contributions made to the account and the investment gain continue to grow tax free until the money is withdrawn at retirement

Question 24

How are post tax contributions impacted by taxes overtime

Answer 24

Only the investments gain or income, not the contributions themselves, enjoy the benefit of tax deferred growth

Question 25

Define a fixed match employer contribution to a defined contribution retirement plan

Answer 25

A certain percentage of salary or a fixed dollar amount to match employees contributions

Question 26

Define profit related in reference to employer contributions to a defined contribution retirement plan

Answer 26

A variable amount given, depending on amount of profits

Question 27

In regard to employer contribution define what form of contributions are service related

Answer 27

Amount is determined by years of employment

Question 28

In regard to employer contributions in forms of contributions, what is the combination type how is it defined?

Answer 28

Any combination of

Fixed match
Profit related
Service related

Question 29

How are employer contributions taxed?

Answer 29

Employer, contributions are tax deductible however there is a maximum deduction for those employers who offer both defined benefit and defined contribution plans

Question 30

In regard to employer contributions, what’s typical timing for making the contribution

Answer 30

Most companies make the contribution per pay period. Others make it after the end of the tax year

Question 31

What IRS codes contain tax law limits on maximum compensation

Answer 31

IRS code 415
IRS code 402G

Question 32

When are employee contributions considered vested?

Answer 32

Employee contributions are 100% vested

Question 33

What are the legal requirements for all employer matching contributions in regard to vesting?

Answer 33

Three year cliff(100% after three years)
Or
2 to 6 year graded (20% a year)

Question 34

Forfeiture represent benefits that were not 100% vested at termination. What can a company use for fixtures for?

Answer 34

Offset employer contributions

Reallocate to participants

Pay plan expenses