Retirement Plans Flashcards
1
Q
Defined Benefit Pension Plan
A
- Older employees
- Guaranteed retirement benefit
- Requires stable cash flow and excess profits
- Past service credits allowed
- For benefit at 65, benefit is lesser of $275k or 100% of comp 3 highest earning years. (Only up to $345k)
- Forfeitures must be used to reduce ER contributions
- Not flexible
- ERISA and PBGC
- Vesting schedule
- Integrated with SS
- Exempt from creditors
2
Q
Cash Balance Plan (pension type of DB)
A
- ER guarantees contribution level and minimum rate of return on each account
- Similar to money purchase on
- When ER can’t afford DB or small ER with high earners
- ERISA and PBGC
- Vesting schedule
- Integrated with SS
- Exempt from creditors
3
Q
Money Purchase Pension Plan
A
- Up to 25% ER deduction of overall payroll
- Fixed contributions
- Stable CF needed
- Uses fixed benefit formula ER contribution is flat % of comp. Only first $345k taken into account
- Max contribution lesser of $69k or 100% of salary
- Use to retain key young employees
- Simple to admin
- Forfeitures can be used to reallocate to participants or reduce ER contributions
- Vesting schedule
- Admin costs
- Exempt from creditors
- Integrated with social security
4
Q
Target Benefit Pension Plan
A
- Up to 25% ER deduction
- Fixed contribution
- Stable CF needed
- Favors older employees
- Adequate but not guaranteed benefit
- Lower cost and simpler than DB
- Max contribution lesser of $69k or 100% of comp
- Benefit determined by account balance
- No annual actuarial determination actuary determines initial contribution level with fixed mandatory contributions
- Forfeitures reallocated or reduce ER contributions
- Employee assumes investment risk
- Vesting schedule
- Admin costs
- Exempt from creditors
- Can be integrated with SS
5
Q
Profit Sharing Plan
A
- Up to 25% ER deduction of all participants compensation
- Flexible contributions recurring and substantial
- 401k provisions (FICA) (hardship withdrawals)
- Simple 401k exempt from creditors. Each account has ER contributions, investment returns, forfeitures
5.use when profits vary - ER wants qualified plan with incentive feature that the company profits
- Young, well paid
- Only first $345k in consideration
- 401k is PS or stock bonus
- Max $23k subject to fica/futa. $7500 catch up. Not included in 25% ER deduction or contribution limits (lesser of $69k or 100% of comp)
- Deferral is $23k max. Contribution includes deferral and catch up
- Not simple to install
- Admin costs
- Exempt from creditors
- Can be integrated with SS
- Vesting schedule
- ER can contribute and deduct up to 25% of comp in addition to the elective deferral not the match
- Hardship withdrawal distribution = total elective deferrals and vested profit sharing contributions
6
Q
Stock Bonus Plan
A
- Up to 25% ER deduction
- Flexible contributions
- 100% contributions can be invested in company stock
- ESOP cannot be integrated with SS
- Use when company wants to broaden ownership of its stock
- No matter how many employees, an ESOP is one S shareholder
- NUA may not be taxed to the EE when they receive distribution at retirement
- Vesting schedule
- Admin costs
- Exempt from creditors
7
Q
SIMPLE IRAs
A
- For small employers (100 or fewer)
- Requires ER match. Immediate vesting
- Salary reduction limit up to $16k (FICA) + ER match. $3500 catch up
- Company cannot have another plan
- No discrimination testing
- ER can make $ for $ match up to 3% of comp
- No salary cap of $345k
- Distributions taxed at ordinary income but the 10% premature distribution penalty is increased to 25% during first 2 years of participation
- 401k simple still 401k plan
- Not integrated with SS
- Lower admin and simple to install
8
Q
SEP IRA
A
- No salary deferrals. Contributions can vary
- Up to 25% contribution for owner (W2) up to 18.59% contribution for self employed
- Immediately vested
- Can be integrated with SS
- Special eligibility 21, $750, 3/5 years worked
- Annual additions limit 25% (not 100%) of comp or $69k (345k max) for self employed 12.12 or 18.59 like kept
- No requirement for annual contribution
- ER looking for alternative to qualified PS plan. Easy to admin and less expensive
- Advantage for ERs with short term employees. Disadvantage for ERs with part time employees
9
Q
SARSEP
A
- May have up to 25 EEs. 50% of eligible participants must defer
- Created before 1997
- Salary reduction limit $23k (FICA). $7500 catch up
- New EEs can participate if established before 1997
- Early withdrawal doesn’t require hardship like 401k
- Ordinary income at any age + 10% penalty
- Immediately vested
10
Q
403(b) / TSA / TDA
A
- For 501(c)(3) orgs and public schools
- Subject to ERISA only if ER contributes
- Salary reduction limit up to $23k (FICA)
- ER contribution may be subject to vesting schedule
- ERs can match. Extra $3k if worked for an additional 15 years
- Determine max excludable:
- for salary reduction determine whether intended contribution exceeds elective deferral limit (23k + 7.5k)
- determine whether it exceeds 415c limit (69k or 100% comp)
11
Q
Simple 401k
A
- Max ER can contribute is $345k x .03 = 10,350
- The salary cap applies for 401k simple
- Deferral is still $16k
- No vesting schedule
- exempt from creditors.
6.Each account has ER contributions, investment returns, forfeitures
12
Q
Uni 401k
A
- No coverage or discrimination testing
- Elective deferral $23k + ER contribution with $69k cap 7500 catch up
- Max contribution 25% comp or $69k (max includes the catch up)
- Can take loans
- Creditor protected
- Part time employees don’t count as employees
13
Q
Plans not integrated with SS
A
ESOP
SIMPLE
SIMPLE 401(k)
14
Q
IRA KEYS
A
- No loans
- No life insurance
3 immediate vesting - May not be creditor protected state specific
- 59 1/2 not 55 for no 10% penalty
- Must take RMDS at 73 even if not owner
15
Q
Retirement plan keys
A
DB / DC salary cap $345k
Simple ira salary cap $533,333
DC max contribution - 69k (76500 if 50)
DB max contribution - stuff like a pig
Tandem = wrong answer
