Retirement Flashcards
OASDI Benefits Eligibility for Dependent/ Child
Under 19 full-time student (elementary, secondary school)
+18 yrs with disability occurring before 22
Fast vesting schedule
Top Heavy DB plans and ALL DC plans
3 year cliff; 2-6 year graded
Or 100% vested w/ 2 yr minimum LOS eligibility
Slow vesting schedule
Non-Top Heavy DB plans
5-year cliff; 3-7 year graded
100% vested w/ minimum 2 year LOS eligibility
OASDI Spousal Benefits Eligibility
DEATH of worker: Spouse +60 yrs
OR
Caring for child disabled before 22 yrs
RETIRED/DISABLED: Spouse +62 yrs
OR
Has a child in care 10 yrs and never remarried(+62 yrs can still receive benefits without the worker dying/retiring/disabled after 2 years in divorce)
Top Heavy Plan definition
> 60% of aggregate accrued benefits or account balances are allocated to key employees
Calculating Vesting amounts
Determine vesting schedule
Eliminate year 1 (2 year minimum LOS)
Divide 100% by remaining years
(EX. 6 year graded, Year 2 = 20%, Year 3 = 40%…)
Coverage Requirements Percentage
70%
Ratio-percentage test: must cover NHCE’s to at least 70% of the percentage of HCE’s covered
Average benefit test: NHCE benefits must be at least 70% of HCE’s
Number of hours in a year of service (DC)
1,000 hours
412(i) Plan
DB plan entirely funded with insurance
There must be an insurance need
Salary Deferral/reduction Max
$18,000
DC Contribution Max/Annual Additions Max/Section 415 Limit
$53,000
+$6,000 catch-up
Max DB Benefit
$210,000/yr
401K Deferrals subject to…
FICA and FUTA
DB/DC Salary Cap
First $265,000
SIMPLE IRA Salary Cap
$416,667
IRA Keys
NO Loans
NO Life Insurance
Immediate Vesting
May NOT be creditor protected (state-by-state)
+59 1/2 for no 10% penalty
Must take RMDs @ 70 1/2 (even if not an owner)
Cash Balance Plan
DB Plan Guaranteed Returns (employer)
Like a Money Purchase
Target Benefit
DC plan; no deferrals; employee takes investment risk
Salary Deferral/reduction Max
$18,000
DC Contribution Max/Annual Additions Max/Section 415 Limit
$53,000
+$6,000 catch-up
Max DB Benefit
$210,000/yr
401K Deferrals subject to…
FICA and FUTA
DB/DC Salary Cap
First $265,000
SIMPLE IRA Salary Cap
$416,667
IRA Keys
NO Loans
NO Life Insurance
Immediate Vesting
May NOT be creditor protected (state-by-state)
+59 1/2 for no 10% penalty
Must take RMDs @ 70 1/2 (even if not an owner)
Cash Balance Plan
DB Plan Guaranteed Returns (employer)
Like a Money Purchase
Target Benefit
DC plan; no deferrals; employee takes investment risk
NO other plans…
SIMPLE
EASY to install and LESS EXPENSIVE than qualified profit sharing plan
SEP
Form to establish SEP
Form 5305-SEP
This plan is disadvantaged by returning part-time employees…
SEP
No new SARSEP can be established, but…
SARSEP; new employees can be added if established before 1997
DB Top Heavy Minimum Benefit for NHCEs
> = 2% of comp
DC minimum employer contribution
> = 3% of comp
**Profit sharing plans are not subject to this, but are required to be substantial and recurring
401k and 403b non-discrimination Testing
HCE’s defer 0-1%: x2 NHCE
HCE’s defer 2-8%: +2 NHCE
Plans NOT Integrated with Social Security
ESOP, Stock bonus, SIMPLE, SIMPLE 401(k)
Permitted Disparity for DC plan
Lesser of base or 5.7%
**Under 11%, use 1/2 of excess as base and permitted disparity
Permitted disparity for DB Plan
Lesser of base or 26.25%
Boats and Trailers HO Coverage limit
$1,000 in coverage C
Taxability of Social Security
50% taxed at MAGI $25,000 single, $32,000 MFJ
85% taxed at MAGI $34,000 single, $44,000 MFJ
Keogh Contribution Shortcuts
For 15% contributions multiply employer profit by 12.12%
For 25% contributions multiply by 18.59%
Deductible IRA (One Spouse active participant in employer plan)
Inactive spouse can make a deductible contribution under $183k-191k AGI
IRA contribution deductibility phaseouts
Single $65K
Married $110K
Spousal $185K
Roth IRA Eligibility Phaseouts
Single $116-131k
MFJ $183-193k
Separately $0-10k (can’t happen)
Solution for overfunded DB Plan; goal is continuation of contributions
Fully-fund with life insurance or some other low return vehicle.
This reduces the expected return assumptions and allows participants to continue to contribute to the plan
VEBA benefits cannot fund…
Retirement or deferred compensation
Social Security Benefits reduction before NRA/FRA
*1/180
Reduction of benefit per month for the 36 months preceding FRA/NRA
(EX: normal monthly benefit amt = $1,000
Taking benefits 24 months before NRA
1/180 x 24 x $1,000 = $866.60 adj. monthly benefit
Social Security Benefits Reduction working after retirement
Younger than NRA in all of 2015…
$1 for every $2 earned above $15,720
Reaching NRA in 2015…
$1 for every $3 earned above $41,880 until NRA
