RPF M1 U1 Why Do Employers Establish Qualified Plans Flashcards
Why do employers establish qualified plans?
Employers establish qualified plans to attract and retain employees, provide competitive retirement benefits, and take advantage of tax benefits.
What is an employer-sponsored plan?
An employer-sponsored plan is a retirement plan set up and overseen by an employer for the benefit of its employees.
What is ERISA?
ERISA stands for the Employee Retirement Income Security Act, a law passed in 1974 that covers employee benefit plans and provides protection to participants of retirement plans.
What is a Plan Sponsor?
A Plan Sponsor is the designated party, usually an employer or company, that establishes and maintains the plan for the benefit of the company’s employees.
What is a Qualified Plan?
A Qualified Plan is a retirement plan that meets the requirements of IRC §401(a) and provides special tax advantages to the plan sponsor, the trust, and plan participants.
What are the benefits for employees and employers of employer-sponsored retirement plans?
Employer-sponsored retirement plans help attract and retain employees, provide tax advantages for both employers and employees, and can help employees save for retirement.
How do employer contributions benefit employees?
Employer contributions to retirement plans are not currently taxed for employees, allowing them to grow their retirement savings without immediate tax implications.
Nane two tax benefits that employees receive from qualified plans?
Employees can make contributions on a pre-tax basis, defer taxes on earnings, and potentially benefit from tax-free withdrawals in retirement with Roth contributions.
What is the role of the Department of Labor (DOL) regarding qualified plans?
The DOL oversees Title I requirements of ERISA, ensuring plans are maintained for the exclusive benefit of participants and beneficiaries.
What are Title II requirements under ERISA and why?
Title II requirements are the rules on
1. Coverage,
2. Contribution limits,
3. Minimum contributions, and
4. Nondiscrimination
To ensure that the plans benefit all employees fairly.
What is the significance of the SECURE 2.0 Act?
The SECURE 2.0 Act allows plans to offer employees the option to receive employer contributions as Roth contributions, providing additional tax benefits.
How do employer-sponsored plans affect employee savings behavior?
Employees are approximately 14 times more likely to save for retirement when they have a retirement plan at work compared to saving on their own.
