RP & EB - Chapter 1 - Introduction to Qualified Plans

Question 1

Advantages of Qualified Plans

Answer 1

Employer:
- contributions tax deductible
- contributions not subject to payroll taxes

Employee:
- pretax contributions for employees available
- tax deferral of earnings on contributions
- Lump-sum distribution options

*Both Employers and Employees are exempt from payroll taxes on employer contributions providing up to 15.3% (12.4% OASDI & 2.9% Medicare) savings on taxes.
Employee is subject to Additional Medicare 0.9% tax if income exceeds thresholds (provided tax table)

Question 2

HC vs NHC Employees

Answer 2

HC:
- Greater than 5% owner during current or prior year (as well as family - attribution rules apply!)
- Compensation exceeding $150,000 (2023) or $135,000 (2022)

Question 3

Coverage Tests

Answer 3

General Rule: > 70% NHC employees must be covered

To be qualified, retirement plan must meet 1 of 3:
1) General Safe Harbor
2) Ratio % Test
3) Average Benefits Test

*Defined Benefit plans must ALSO pass 50/40 Test

Question 4

Key Employee Requirements

Answer 4

1) Greater than 5% owner
2) Greater than 1% owner & salary exceeding $150,000
3) Officer with compensation exceeding $215,000

Question 5

Top-Heavy Plan

Answer 5

• If > 60% of benefits/contribs go to Key Employees, then THINK Top-Heavy

Question 6

Defined Benefit 50/40 Test

Answer 6

Extra test for Defined Benefit plans:
- 50 people or 40% eligible employees must be covered at all times
**Exam Tip: People come first

Question 7

Years of Service

Answer 7

• FT: 1,000 hours and 12 consecutive months
• PT: (starting 2021) 3 consecutive years of service (500+hrs)