Unit 1: Plan Types Flashcards
Money purchase plans are less popular because: ( 3 reasons)
1.Mandatory employer contributions
2.Restrictive distribution rules
3.Cannot permit employee deferrals
Money purchase plans must have a (blank) (blank) formula for its ER annual contributions
A defined contribution formula
Distributions from money purchase plans are only allowed for what five events:
1.Retirement
2.Death
3. Disability
4. Termination
5.In-service distribution
The allocation formula for money purchase plans may be different from the contribution formula but the total for each must be the same, true or false?
True
An employer must pay (blank) if they fail to comply with minimum funding requirements for a money purchase plan?
An excise tax
Money purchase plans are not required to comply with joint survivor annuity rules, true or false
False. Distributions must be paid as an annuity unless Participant and spouse consent to an alternative
What are two benefits of a money purchase plan?
1.Some employers want the obligation of a contribution so this can be communicated to employees.
2Unions and other employees that negotiate benefits want the certainty of contributions.
A profit sharing plan allows for (blank) funding, is a (blank) (blank) plan and many include (blank).
Discretionary funding, defined contribution plan, 401(k)s
If the formula for a profit sharing plan is dependent on actual company profits what must occur?
The document must state how these are calculated
Deposits and contributions into a profit sharing plan must be what? (2 criteria)
Substantial and recurring.
(But not required each year)
What can happen if deposits and contributions to a profit sharing plan are not substantial and recurring?
Accelerated vesting can result
The allocation formula for a profit sharing plan does not have to be spelled out in the plan document, true or false?
False. The allocation formula must be identified
What are some of the beneficial features of a profit sharing plan? (4)
Discretionary,
flexibility in contributions,
in-service distributions flexibility,
able to add 401(k) deferrals
How is a stock bonus plan like a profit sharing plan?
They are very much alike, except under a stock bonus plan the benefits are distributable in employer stock.
Stock bonus plans offer the same contribution and allocation formulas as profit sharing plan, true or false?
True
Most stock bonus plans provide what type of formula? They may adopt any allocation formula available to what two types of plans?
1 Discretionary contribution formula
2 Profit-sharing plans and money purchase plans
Stock bonus plans allow employers to make contributions in what form?
It’s own stock
An ESOP plan stands for what?
Employee Stock Ownership plan
An ESOP plan May be a (blank blank) plan or a combination of (blank blank) plan and this additional type of plan.
Stock bonus plan or combination of stock bonus plan and money purchase plan
An ESOP plan does not need to be designated to invest primarily an employer securities, True or false?
False. They must be designated in order to invest primarily in employer securities
Contribution and allocation rules for a ESOP plan follow the same rules as these type of plans (blank)
Profit-sharing plans
What are three pros to owners & key EEs by offering a defined benefit plan? (Such as a cash balance plan)
1Large Contributions (significantly greater than defined contribution plans)
2Tax sheltering
3Accumulate Larger Benefits (for owners and key employees)
What is a con of defined benefit plans?
Contributions are required even when it’s a bad year for the plan sponsor.
What does SEP stand for?
Simplified employer Pension
There is always a trust established in an SEP?
False. SEPs do not require trusts.
Employers just make contributions directly into (blank) for SEP plans?
IRAs established for employees under the SEP
What are the two eligibility requirements for a SEP?
Age 21- maximum limit
Service- No minimum but a maximum of three out of five years worked.
What are the two formulas available for SEP plans?
Pro Rata
Permitted disparity
Compensation is capped at what amount for consideration for qualified plans in 2023?
$330,000
What’s the minimum salary considered for an SEP plan?
In 2022 in the amount was $650
The limit on employer contributions into an SEP plan is what?
The lesser of 25% of employee wages or $61,000
How is the 25% of compensation calculated between SEP plans and PSP plans?
SEP plans-25% is based on each
Participants wages
Profit-sharing plans- 25% is based on an aggregate of Participants.
Simple IRA stands for what?
Savings incentive match plan for employees- IRA
How many employees can a business have and still offer a simple IRA?
Must have less than 100 employees that earn at least $5000 a year
The law allows a (blank blank) grace period If an employer goes over 100 employees in a simple IRA
Two year grace period
Employees that were working at any time during the year are considered when determining accompanies eligibility for a simple IRA (100 EE Rule),
True or false?
True
What are the only two exceptions which allow a company to offer a qualified plan in the same year as a simple IRA?
1A qualified plan for union members
2Transitional relief
The simple IRA plan document does what?
Establishes the plan and authorizes contributions
The simple IRA document does what?
Establishes the IRA vehicle which receives contributions on an employee’s behalf.
What are the Employer contribution methods into a simple IRA?
A 2% NEC
3% match
When and how can an employer reduce the match in a simple IRA?
Employer may reduce the 3% match to one percent two out of five years and a Simple IRA
What is the compensation limit and how does it apply to employer contributions in a simple IRA?
The Limit of $330,000 for 2023, only applies to the non-elective contribution it does not apply to match.
What are the penalties attached to early withdrawal’s in a simple IRA?
There is a 25% excise tax for distribution in the first two years of participation in a
Simple IRA if under the age of 591/2 yrs old
403B plans are only available to what organizations?
501 C3 organizations
Contributions in a 403B can only be made to what 3 investments pathways?
1Annuity contract through an insurance company
2Custodial account invested in mutual funds
3Retirement income account set up for church employees
Because 403B’s originally could only be invested in annuity contracts, these plans were often referred to as what?
Tax sheltered annuity plans
Because virtually all employees are eligible to participate in a 403B on their date of hire what tests are these plans exempted from?
ADP
Coverage testing
ERISA plans Have what?
Employer contributions
ERISA exempt plans feature what?
Employee deferral’s only
Limited involvement from employer
