RPF M1 U4 How Does Money Get Into the Plan Flashcards
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What does the 401(k) Recordkeepers do?
They track participant accounts and ensure that contributions are invested in the appropriate funds.
What is a matching contribution?
An employer contribution made based on a participant’s contribution, which may match all or part of the employee’s pre-tax, catch-up, designated Roth, and/or after-tax contributions.
What is the difference between employee contributions and employer contributions?
Employee contributions are amounts deferred from salary by the employee, while employer contributions are made by the employer, such as matching or nonelective contributions.
What are elective deferrals?
Contributions made to a plan at the participant’s election, also known as salary deferrals.
What is vesting?
The percentage of a participant’s accrued benefits to which they are entitled, which may not be forfeited.
What is a pre-tax contribution?
Employee money contributed to a plan from a paycheck that is not taxed at the time it is contributed; it is taxed upon withdrawal.
What are designated Roth contributions?
Compensation deferred to the plan at the participant’s election on an after-tax basis, which may allow for tax-free earnings upon distribution if certain requirements are met.
What is a rollover contribution?
A method of transferring assets from one plan to another, allowing for continued tax-deferral.
What is a nonelective contribution?
A contribution made by the employer on the participant’s behalf, without requiring an election by the participant.
What is a safe harbor contribution?
A contribution type required for safe harbor plans, which can be either matching or profit-sharing contributions and are 100% vested.
What is the purpose of a vesting schedule?
To determine how employees become entitled to receive employer contributions based on their years of service.
What are catch-up contributions?
Additional contributions allowed for participants age 50 or older, which can be made on a pre-tax or designated Roth basis.
What types of contributions can employees make?
Employees can make elective salary deferrals, pre-tax contributions, designated Roth contributions, and after-tax contributions.
What is the difference between after-tax contributions and designated Roth contributions?
After-tax contributions are subject to taxation upon distribution, while designated Roth contributions may allow for tax-free earnings if certain criteria are met.
What is vesting?
Vesting describes the portion of the participant’s account that the participant is entitled to receive upon an event that allows for money to be withdrawn, such as termination of employment.
What is a vesting schedule?
A vesting schedule is how employees become entitled to receive their employer contribution accounts based on the number of years of service completed with the employer.
What are the two types of vesting schedules?
The two types of vesting schedules are graded vesting and cliff-vesting.
What is graded vesting?
Graded vesting allows a participant to earn a specific percentage of their account or benefits over a specified period.
What is cliff-vesting?
Cliff-vesting means participants are not entitled to any benefits until they have reached a certain number of years of service, at which point they are entitled to all of their benefits.
What contributions are always 100% vested?
Employee contributions and rollover contributions are always 100% vested.
What is the role of plan fiduciaries regarding investments?
Fiduciaries have a duty to prudently select and monitor investments available to participants, including default investments.
What are the four primary asset classes in qualified plans?
The four primary asset classes are equities, fixed income, cash, and alternatives.
What are target date funds?
Target date funds are diversified asset allocation funds designed to be held as a single investment by a participant, shifting the investment burden to a professional investment manager.
Who tracks contributions and account information for participants?
401(k) Recordkeepers, the plan’s recordkeeping service provider, tracks contributions, distributions, and investments for all participants in the plan.
