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Jason Flash Cards > Retirement Planning > Flashcards

Retirement Planning Flashcards

1
Q

Is a 401k a Qualified Plan?

A

Yes - a 401k is also known as a CODA

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2
Q

What are the four types of Pension Plans?

A

Defined Benefit Pension Plan (DB Plan)
Cash Balance Pension Plan (DB Plan)
Money Purchase Pension Plan (DC Pension Plan)
Target Benefit Pension Plan (DC Pension Plan)

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3
Q

What are the seven types of Profit Sharing Plans?

A

Defined Contribution Profit Sharing Plans

Profit Sharing Plans
Stock Bonus Plans
ESOPS
401k Plan
Thrift Plans
New Comparability Plans
Age-Based Profit Sharing Plans
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4
Q

What is a pension plan?

A

a qualified retirement plan that pays a benefit, usually determined by a formula, the participant, until death

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5
Q

What is a profit sharing plan?

A 
Promise of deferral of comp and tax
After two years - in service withdrawals ok
No mandatory funding
100% can be in company
No joint or survivor requirement
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6
Q

All defined benefit plans are pension plans, but defined contribution plans can be either pension plans or profit sharing plans.

A

Pension plans can be either defined benefit or defined contribution, while all profit sharing plans are defined contribution plans.

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7
Q

What are the requirements for a qualified plan?

A

Eligibility - 21 or 1`2 months of year of service (at least 1,000 hours of service) (this can be reduced)

Coverage - Must provide benefits under the plan to a minimum number of nonhighly compensated employees.
Also, if employer makes a contribution (receives a benefit)

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8
Q

What are the requirements for a qualified plan?

A

Eligibility - 21 or 1 year of service (at least 1,000 hours of service) (this can be reduced)

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9
Q

Entrance date example

A

Page 7

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10
Q

How many employees must be covered under a qualified plan?

A

70% of nonhighly compensated employees

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11
Q

What is the definition of a highly compensated employee?

A

More than 5% owner (current or previous) - NOT 5%

More than $130k in compensation

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12
Q

What is the 50/40 test?

A

Lesser of 50 employees or 40% of employees

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13
Q

What is the 50/40 test?

A

50 employees or 40% of employees

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14
Q

Percentage test example

A

Page 19

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15
Q

Vesting example

A

Page 24

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16
Q

Who is a key employee for purposes of the top heavy test?

A

Greater than 5% owner

Greater than 1% owner with compensation of greater than $150k

Officer with comp of greater than $185k

17
Q

What makes a plan that Top Heavy?

A

If > 60 percent of the benefits or contributions are going to key employees, think HEAVY

18
Q

What are PBGC monthly and annual benefits?

A

$5,812.50 monthly

$69,750

19
Q

What might be a typical formula for a pension benefit?

A

percent per year x years of service x salary formula

20
Q

What is the maximum benefit from a defined benefit pension plan?

A

Lesser of $230k or three consecutive years of salary

21
Q

What are the characteristics of a pension plan?

A

Mandatory Funding

Disallowance of in service withdrawals

Limited investment in company (10%)

Limited investment in Life Insurance

22
Q

What are the 25 percent test and the 50 percent test?

A

If term policy, use 25% test: Premiums cannot exceed 25% of the employers contribution

If whole life policy, 50% test.

**Don’t forget the 100-to-1 Test. Death benefit of life insurance cannot exceed 100X monthly benefit.

23
Q

DBPP versus DCPP

Actuary
Commingles versus Separate
Investment Risk
Allocation of Forfeitures
PBGC
Benefits
Credit for Prior Service
Integration with Social Security
Commingled Assets
A

Actuary - only DBPP

Comingles - DBPP NO while DCPP is Yes

Investment Risk - DBPP Company while DCPP is participant

Allocation of Forfeitures - DBPP to reduce costs while DCPP can either reduce costs or spread among participants

PBGC - DBPP Yes while DCPP no ($5,812.50/mo)

Benefits - DBPP is an estimate of the FV of payments while DCPP is the balance of the plan.

Credit for Prior Service - DBPP Yes while DCPP No

Integration with Social Security - both allow

Commingled - DBPP do not maintain separate accounts while DCPP do maintain separate accounts

24
Q

What are the two tests for Integration with Social Security?

A

Excess Method: 0.75% x Years exceed limit x excess

Offset Method: (1) Lesser of 0.75% per year of service up to 35 years or (2) 50% of the overall benefit funding percentage per year of service.

25
Q

What are the three common funding formulas?

A

Flat: Everyone receives the same

Flat Percentage: Everyone gets same percentage of income

Unit Credit Formula: Percentage x years of service x salary

26
Q

What is a Cash Balance Pension Plan?

A

Cash balance plans are a popular choice to get rid of old expensive DB Plans.

Much like a defined benefit plan that shares many characteristics of a DC plan, but provides specific retirement benefits.

A cash balance plan uses 3 year cliff

Provide an amount and then a guaranteed interest.

27
Q

What is Money Purchase Pension Plan?

A

A money purchase pension plan is a defined contribution pension plan that provides for a contribution to the plan each year of a fixed percentage of the employees’ compensation.

Up to 25% of the employer’s total covered compensation. Lesser of 100% of participants compensation or $57,000.

28
Q

What is a Target Benefit Pension Plan?

A

A special type of money purchase pension plan that determines the contribution to the participant’s account based on the benefit that will be paid from the pan at the participant’s retirement.

29
Q

What is Social Security Integration for Profit Sharing?

A

Excess Method: BP = Exxon

Base Rate + Permitted Disparity = Excess Rate where the Permitted Disparity equals the lesser of the base rate or 5.7%.

30
Q

Vested Balance in 401k example

A

Page 56

31
Q

What happens if the employer adds a profit sharing amount?

A

Limits how much the employee can put in and don’t forget about the $57,000 limit.

32
Q

What is ADP?

A

If NHC contribution is 0 - 2%, then the HC deferral can only be 2X, if 2-8%, then HC is 2% plus NHC deferral and if greater than 8%, then HCH is 1.25x NCH deferal

Jason Flash Cards (6 decks)

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