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Fundamentals > Retirement Plans > Flashcards

Retirement Plans Flashcards

0
Q

Simple 401k plans are considered

A

profit sharing plans

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1
Q

All the following are qualified plans except

a. SEP Plans
b. ESOPs
c. Section 401k
d. Cash Balance Plans

A

Answer: Sep Plans

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2
Q

Simple IRA’s are considered

A

a tax-advantage plan

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3
Q

Mandatory ER Funding for Pension Plans

A
  1. Defined Benefit Plan
  2. Money Purchase Plan
  3. Cash Balance Pension Plan
  4. Target Benefit Pension Plan
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4
Q

In Service w/d’s for Pension Plans

A
  1. Defined Benefit and Money Purchase - 62 or older

2. Cash Balance and Target Benefit No In-service w/ds

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5
Q

Other Tax Advantage Plans

A

IRA
SEP
Simple IRA
Section 403 b

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6
Q

Profit Sharing

A 
Profit-Sharing
Stock Bonus
Simple 401k
ESOP
401k
Thrift
Age Based
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7
Q

Pension Plans

A

Defined Benefit Plan
Cash Balance Plan
Target Benefit Plan
Money Purchase

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8
Q

Nonqualified Plans

A 
Deferred Compensation
Nonqualified stock options
Split $ Insurance
Incentive Stock Options
Phantom Stock
Section 457 plan
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9
Q

ERISA from Creditors

A

Unlimited protection from creditors

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10
Q

Non-Erisa laws and rulings related to Creditors

A 
1.  Unlimited protection from creditors
all qualified plans
Rollover IRA's
Sep IRA's
Simple Ira's.
  1. First 1 million protected from creditors
    a. Traditional IRA
    b. Roth IRA
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11
Q

Qualified Plan Establishment

A
  1. Must be established by Dec 31
  2. Must be in writiing
  3. Plans often submitted to IRS for determination letter
  4. Communicated to EE’s
  5. Permanent
  6. must not allow or have prohibited transactions
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12
Q

Highly Compensated EE’s

A
  1. > 5% owner of ER any time during current/preceding year, OR
  2. $$ salary >$115,000
  3. ER makes election “Top-paid group” only top 20% considered HCE for testing purposes. (this does not remove EE from the HCE group if EE is also greater than 5% owner)
  4. Family Ownership attribution rules apply to determine 5% and 1% owners.
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13
Q

Key EE

A
  1. Any officer with $$ >$165k
  2. > 5% owner
  3. > 1% owner with $$ >150k
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14
Q

Retirement Plan General Rule: SAFE HARBOR TEST

A
  1. ER must cover 70% of all eligible nonhighly compensated EE’s
  2. Plans that do not meet Safe Harbor Test, must meet one of the following 2 tests.
    a. Ratio Test %NHC Covered divided by % HC Covered

b. Percentage Test Average benefits % NHC divided by Average benefits % HC

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15
Q

50/40 test: Defined Benefit Plans

A

All Defined Benefit Plans on each day of the plan year for the lesser of:

a. 50 EE’s
b. 40% or more of all eligible nonexcludable ee’s

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16
Q

Purposes of the 40% test

A

the plan does not have to consider ee’s who are not eligible for the plan. Noneligible EE’s include:

a. EE’s who do not meet age and service (21 & 1)
b. Excluded EE’s, Union ee’s and nonresident aliens

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17
Q

Defined Contribution plan can satisfy the permitted disparity (integration) only it is uses

A

an excess method plan integration formula

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18
Q

Two methods of meeting Safe Harbor Plan provisions

A
  1. Dollar-for-dollar matching up to 3% of compensation and a 50% match on the next 2% of compensation, and
  2. A nonelective contribution of 3% of compensation. This nonelective contribution must be made for all eligible EE’s, regardless of participation.
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19
Q

Although loans are found most common in ______________ and _________________ any type of ______________ plan may permit loans

A

Answer: 401k, 403b, and qualified

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20
Q

Section 403b is not a qualified plan it is a

A

tax advantage plan

21
Q

Nonqualified plans….

A
  1. Give an EE a deferral of taxes

2. Have lower adm costs than qualified plans

22
Q

Qualified plans provide greater flexibility in the number and makeup of EE’s covered by the plan then do the rules pertaining to…

A

SEP and Simple Plans.

23
Q

Target Benefit Plans Favor…

A

Older EE’s

24
Q

SEP IRA Plans Favor

A

Younger EE as do all non age weighted, defined contribution plans

25
Q

Split Dollar insurance plan is an example of what kind of retirement plan?

A

Nonqualified Plan

26
Q

SEP Plan is good for small companies for the following reasons:

A
  1. Use an IRA as the receptacle for ER/EE contributions
  2. Low cost and low adm fees
  3. All ER contributions to SEP are discretionary
27
Q

SEP Plans require immediate and …

A

full vesting of ER contributions.

28
Q

A Money Purchase Plan, 401k Plan, and Traditional Profit Sharing are defined contribution plans which must vest at least as rapidly as

A
  1. 3 year cliff vesting

2. 2-6 year graded vesting

29
Q

Loans are not permissible from a SEP Plan because

A

it consists of an IRA

30
Q

SEP Plan Coverage and Contribution

A
  1. Contributions must be made for all EE’s who have attained 21 years of age and meet the service requirements
  2. Contributions must be made for all EE’s who have performed services for the ER for at least 3 out of the past 5 years
  3. Contributions must be made for all EE’s who received a minimum of $550 of compensation for the year
31
Q

When changing ER’s

A
  1. EE’s have only 60 days to rollover money, otherwise taxes will be do.
  2. Maintaining assets in ER sponsored plans may allow an EE access to loan provisions and preserve 10 year forward averaging for older EE’s
32
Q

All qualified pension plans must provide a …

A

Qualified Preretirement survivor annuity (QPSA) for married participants only.

33
Q

The portion of a lump sum distribution attributable to pre-1974 accruals is…

A
  1. Determined by finding the ratio of an individual’s months of plan participation before 1974 to the total months of participation.
  2. Taxed at a capital gains rate of 20%
34
Q

An ESOP and a Stock Bonus Plan can only be established by …

A

S Corporation & C Corporations.

35
Q

A Money Purchase Pension Plan and an Age-Weighted Profit Sharing Plan would both be appropriate plans for a…

A

Partnership.

36
Q

What kind of qualifying plans can an S Corporation implement?

A 
Profit Sharing Plan
Stock Bonus Plan
Money Purchase Pension Plan
ESOP
Simple
Target Benefit
Defined Benefit Plans
37
Q

A type of defined contribution plan that tests whether it’s contribution formula discriminates in favor of the highly compensated EE’s by converting contributions made for each participant into equivalent benefit accruals.

A

Answer: A Cross Tested Plan.

38
Q

It’s a Hybrid Retirement Plan that uses a benefit formula like that of a defined benefit plan and individual accounts like that of a defined contribution plan?

A

Target Benefit Plan.

The contribution derived from the benefit formula in a target benefit plan, but once determined, the plan resembles a money purchase plan in all other ways.

39
Q

It’s a defined benefit plan that promises a monthly retirement benefit based on a hypothetical account balance vs a traditional plan, which promises a monthly retirement benefit for life.

A

Answer: Cash Balance Plan

40
Q

It is a defined contribution plan that allocate contributions to participants in such a way that when contributions are converted to equivalent benefit accruals, (% of compensation), each participant receives the same rate of benefit accrual.

A

Answer: Age-Weighted Plans

41
Q

It’s a defined contribution plan that tests whether the contribution formula discriminates in favor of the highly compensated EE by converting contributions made for each participant into equivalent benefit accruals.

A

Answer; Cross Tested Plans

42
Q

The Target Benefit is not ________________, and the plan benefits ______________ participants by making higher allocations to the accounts of the ______________ participants.

A

Answer; guarantee, Older, Older

43
Q

Unlike Simple IRA’s, ER’s that sponsor SIMPLE 401k’s

A
  1. Cannot reduce the matching % to below 3%
  2. ER contributions to a SIMPLE 401k plan are 100% vested
  3. The 25% penalty applies only to Simple IRA’s
44
Q

SIMPLE Plans

A
  1. ER’s must notify participants that they have a 60 day elective period just prior to the calendar year end in order to make a salary deferral election or modify a previous election for the following year.
  2. The plan must cover an EE who earned $5000 in any 2 previous years, and is reasonably expected to earn $5,000 again in the current year.
  3. All eligible EE’s have the opportunity to make elective pretax contributions of up to $12,000 in 2013 of $14,500 if age 50 and older
45
Q

Money Purchase Pension Plan

A
  1. Plan Sponsor’s costs are predictable and the plan is easily administrated.
  2. The plan participant can easily understand the plan’s simple design and contributions are based on the participant’s salary for each year of his career, rather than on salary at retirement.
  3. Annual additions to each EE’s account are limited to the lesser of 100% of compensation or $51,000
46
Q

A _______________ plan typically features after-tax contributions with matching ER contributions and is a method of saving for retirement.

A

Answer: A Thrift Plan

47
Q

Because a _______________ Plan is considered an add on feature to a 401k, it actually allows increased EE contributions, although not an increased tax deduction.

A

Answer: A Thrift Plan

48
Q

The incidental benefit rule for whole life insurance in a defined benefit plan is limited to

A

Answer; a face value equal to 100 times or less the monthly retirement benefit or less.

**The incidental benefit rule for whole life insurance in a defined benefit plan relates to the death benefit or face value and not to the amount of contribution on the participant’s behalf.

49
Q

Profit Sharing Plans allow ____________ investments in company
sponsored securities.
The other types of plan are pension plans, which are subject to ______________ contribution limitation of ER stock.

A

Answer: unrestricted, a 10%

Fundamentals (3 decks)

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