Plan Selection

Question 1

Factors that influence plan selections

Answer 1

maximizing contributions to highly compensated
older employees
maximizing employer contributions
minimizing employer contributions
maximizing employer contribution flexibility
vesting to minimize turnover
before tax deferrals

Question 2

Establishing

Answer 2

Typically plan must be established in plan year employer wishes to take a tax deduction

Exceptions:
Safe harbor 401k- adopted before plan year
Standard 401K - established before first deferral (assuming it has deferrals)
Simple 401K - on or after Jan 1 but not later than Oct 1

Question 3

Simple

Answer 3

Established on or before first contribution date
Effective date is Jan 1
First Year - Effective Jan 1 through Oct 1 ok
New business no Oct 1 deadline

Question 4

SEP

Answer 4

MAY BE ESTABLISHED AFTER AN EMPLOYERS FISCAL YEAR END

Has until due date of business tax return including extensions

Question 5

Pension Protection Act 2006

Answer 5

DC - Must be able to diversify employer stock after 3 years

Can allow annuities - safest available annuity (401k)

Question 6

Unrelated Business tax Income (UBTI)

Answer 6

> $1000 qualified plan subject to income tax
examples:
Income from limited partnerships
dividends from margined accounts

Question 7

Life Insurance

Answer 7

must be incidental to the primary purpose of plan
DB and DC
Must meet EITHER:
1. aggregate premiums paid for a participants insured death benefit are at ALL times less than the following % of the plan benefit per participant (DC)
Whole Life 50%
Term 25%
Universal 25%
2. insured death benefit must be no more than 100X the expected monthly benefit. (DB)

company gets deduction
cash value subject to ordinary income when death benefit paid

allow for more contributions that a typical actuarial table for the plan