Retirement Flashcards
How many credits (quarters) do you need to be fully insured under SSI (and what do you get)?
40 credits (10 years) to get:
Lump Sum DB: $225
Retirement and/or survivor benefits
How many credits to you need to be “currently Insured” under SSI (and what do you get)?
6 credits (1 1/2 years) to get:
Lump Sum DB: $225
Surviving Spouse Ben (if kids < 16)
Dependent Benefits
Who is NOT covered by SSI? (FAST CRT 18)
Federal Employees
Abroad
Students (stud nurses, stud working 4 college)
Tribe
Clergy
Railroad
Teachers
18 or younger (emp by parent in un-inc biz)
When are you fully insured (worker’s ben)?
Retirement: 62
Disability: <= 65 & disabled 12 mos or terminal
5 month waiting period
When are you eligible for spousal ben and what do you get?
Spouse:
> 62 of ret/disabled spouse - OR -
Less than 62 but kid , 16 - OR - disabled kid
Divorcee: (10-2-62) EVEN IF SPOUSE NOT RET
62, married > 10 years, div > 2 years
Ben = 50% of spouse or your own (greater of)
Spouse of Deceased (or Ex Deceased) if
>60 OR any age if kid < 16 or disabled
Ben = 100%
What kids are eligible for SS (dependent)?
< 19 and FT student or > 18 disabled for deceased parent
What is PIA (Primary Insurance Amt)?
Calculated on highest 35 years avg earnings
What is FRA (Full Retirement Age) and other cutoffs (with reductions/enhancements)?
What other activity reduces PIA?
@ 62: reduced permanently
@ 67: FRA
@70: Increased permanently
Continuing to work before FRA will reduce SS payments (but after 70 you can collect full PIA and work)
How (on what basis) is SS taxed?
Provisional Income:
AGI + Muni Bond Int + 50% SS Ben determines if 50% or 85% of SS payments become part of taxable income.
What are (2) key differences between qual and non-qual plans?
Qual plans allow immediate deduction for corporation, and earnings in the plan are not taxable to the employer.
What are (2) keys for pension plans and what are the (4) pension plans?
(4) pension plans:
Defined Benefit
Cash Balance
Money purchase
Target Benefit
- Spousal approval re: ben
- Mandatory contributions but can be frozen for a really bad year
What are Section 415 limits?
DC:
1. Lesser of 100% salary or $69K Per ER
2. Only 1st $345 considered
The salary considered is only earned income (no K-1) subject to FICA; 401K, HSA and FSA (Setcion 125 Cafeteria) deductions are added back for consideration.
Note: the $69K includes employee deferrals. The employee can work for multiple companies and have multiple $69K contributed, but ONLY ONE $23K DEFERRAL ALLOWED no matter how many companies.
DB: Lesser of $275K or 100% salary avg last (3) years.
What is age weighted cross testing?
It is a way to cross test to compare DC plan to DB plan outcomes to make sure that those with shorter runway to retirement (older) can catch up; allows you to discriminate based on age and wages to catch up older employees.
Done by projecting employee allocations to a FV and running tests on projections
Note: census is important because you want a barbell distribution on weights to make it work for older employees
What is new comparability cross testing?
Uses different formulas for different job groups (e.g.: managers and line workers)
What are the Unit Benefit and Final Average Formulas for DB plans, and who are they typically applied to?
The DB funding method for teachers, firemen and police.
Unit Benefit: Factors in salary and years of service (e.g.: 1.5% for each year of service (applied to an average salary)
Final Average: based on 4-5 final earning years (tossing out or capping salaries at $345K)
What is a 412I DB Plan:
Funded entirely w/insurance products (LI and annuities)
What are the (2) main types of testing and the (3) tests included in these categories?
What is a 3rd type of test for 401K plans?
What NDT for DB plans?
What type of “employee” is looked at for these tests?
NDT Tests
1. Non-Descrim:
a. Age & Service: 21 and 1
2. Eligibility/Coverage:
a. Ratio %age: Plan must cover >70% HCE
b. Avg Benefit: Avg ben NHCE >= 70% HCE
401K NDT Test
3. ADP/ACP tests are a form of non-discrimination testing for 401Ks.
DB NDT Test
4. Min Participation: Lesser of 50 or 40% eligible
Looks at HCE/NHCE
What is an HCE and what tests use it?
Own 5%
- OR -
Salary > $155K
NDT (Coverage, Eligibility, ADT/ACP)
What is a key employee and what tests use it?
Vesting
> 5% Owner
- OR -
> 1% Owner AND LY Salary > $155K
- OR -
Officer AND LY salary >$220K
LY ONLY to keep newbies out of equation
How do vesting tests work?
These are looking for Top Heavy
You’re top heavy if >60% accrued ben or acct balances are allocated to KEY EMPLOYEES (a vest is 60% of a jacket to remember)
Notes:
1. Look at salaries and only consider 1st $345K
2. Formula =
Key employee salaries/total payroll < 60%
3. If top heavy, use faster vesting schedule and if not top heavy use slower vesting schedule
Vesting Schedules - fast and slow?
Fast (Top Heavy):
1-Year Eligibility:
3 year cliff (all at once) -OR- 2-6 yr graded
NOTHING in year 1
2-Year Eligibility:
100% after year 2
Slow (Not Top Heavy):
1-Year Eligibility:
5 year cliff (all at once) -OR- 3-7 yr graded
NOTHING in year 1
2-Year Eligibility:
100% after year 2
If employee leaves before vesting -> forfeited
What is ADP/ACP Testing and how does it work?
It’s NDT for 401K plans; limits the amounts of deferrals (EE) and contributions (ER) to make sure the HCE aren’t socking away LOTS more than NHCE (forces are reduction in disparity).
The calculation is done per employee and averaged:
ADP = Annual Deferral/Total Comp
ACP = (Annual Defl + Comp Contr)/Tot Comp
then compare HCE to NHCE and figure the caps:
0-2% - multiply by 2 to get the HCE cap (of $345K)
3-8% - add 2 to get the HCE cap (of $345)
This is the only thing that can reduce the $23K deferral max
NOT FOR SAFE HARBOR b/c of mandatory ER contributions.
How much for catch-up deferrals and how do they work?
$7500/year >= 50YO
- On top of $23K or $69K max is ok
- On top of ADP/ACP limits (this is an ADP/ACP
exception)
Can’t defer more than your salary - every!!
What are Common Control Groups or Affiliated Service Groups?
If companies are related (sister cos, subsidiaries, etc.) you can’t use multiple $69K maxes, or use an Affiliated Service Group to put all your support staff in and give them worse benefits. (Same for subcontractors - aka Employee Leasing)
