RPF M3 U2 Termination of Employment Flashcards
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What is a separation from service?
A separation from service occurs when an employee resigns, retires, becomes disabled, dies, or experiences a loss of job due to a reduction in force or layoff.
What is the definition of termination of employment?
Termination of employment is synonymous with separation from service.
What events are considered terminations of employment?
Retirement, separation from service (quitting, being fired, or laid off), death, and disability.
How does one know that a termination event has occurred?
The employer must notify the plan provider when a termination occurs.
What must be done when an employee has terminated employment?
The plan provider must be notified of the termination.
What happens to a participant’s account upon reaching normal retirement age (NRA)?
They become fully vested in their account, regardless of the vesting schedule.
What are the options for distributions upon retirement?
Participants may begin taking distributions upon reaching NRA, whether or not they actually retire.
What defines disability for distribution purposes?
The plan document will define what constitutes disability and what documentation is required.
What happens to benefits if a participant becomes disabled?
Some plans provide benefits to participants who become disabled, and vesting may be accelerated to 100%.
What are the distribution options upon the death of a participant?
Beneficiaries may take a lump sum, installment payments, or roll over the account balance to an IRA or another qualified plan.
What is the difference between separation from service and severance of employment?
Separation from service occurs when employment ends, while severance of employment refers to employees continuing in the same job under a different employer due to a merger or acquisition.
How is the amount available for distribution calculated?
All sources within the account are available for distribution upon termination of employment, subject to vesting schedules.
What is the available distribution for Mark based on his account?
Mark’s available distribution would be $28,000, calculated from his pre-tax salary deferrals and vested employer contributions.
What happens to non-vested amounts at the time of distribution?
Non-vested amounts are typically forfeited when the distribution is taken from the plan.
What should Shirley verify before processing a distribution request?
She must verify that a termination has occurred and check the plan document for specifics related to each request.
What are the tax implications for death distributions that are rolled over?
Death benefits eligible for rollover to an IRA or another qualified plan are not subject to the 20% mandatory withholding rules.
What is the tax treatment for distributions due to disability?
If the participant meets the IRC’s definition of disability, they can avoid the 10% premature distribution additional tax on early distributions.
