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QKA-1 > Unit 1: Plan Types > Flashcards

Unit 1: Plan Types Flashcards

1
Q

Money purchase plans are less popular because: ( 3 reasons)

A

1.Mandatory employer contributions
2.Restrictive distribution rules
3.Cannot permit employee deferrals

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2
Q

Money purchase plans must have a (blank) (blank) formula for its ER annual contributions

A

A defined contribution formula

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3
Q

Distributions from money purchase plans are only allowed for what five events:

A

1.Retirement
2.Death
3. Disability
4. Termination
5.In-service distribution

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4
Q

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?

A

True

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5
Q

An employer must pay (blank) if they fail to comply with minimum funding requirements for a money purchase plan?

A

An excise tax

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6
Q

Money purchase plans are not required to comply with joint survivor annuity rules, true or false

A

False. Distributions must be paid as an annuity unless Participant and spouse consent to an alternative

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7
Q

What are two benefits of a money purchase plan?

A

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.

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8
Q

A profit sharing plan allows for (blank) funding, is a (blank) (blank) plan and many include (blank).

A

Discretionary funding, defined contribution plan, 401(k)s

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9
Q

If the formula for a profit sharing plan is dependent on actual company profits what must occur?

A

The document must state how these are calculated

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10
Q

Deposits and contributions into a profit sharing plan must be what? (2 criteria)

A

Substantial and recurring.
(But not required each year)

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11
Q

What can happen if deposits and contributions to a profit sharing plan are not substantial and recurring?

A

Accelerated vesting can result

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12
Q

The allocation formula for a profit sharing plan does not have to be spelled out in the plan document, true or false?

A

False. The allocation formula must be identified

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13
Q

What are some of the beneficial features of a profit sharing plan? (4)

A

Discretionary,
flexibility in contributions,
in-service distributions flexibility,
able to add 401(k) deferrals

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14
Q

How is a stock bonus plan like a profit sharing plan?

A

They are very much alike, except under a stock bonus plan the benefits are distributable in employer stock.

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15
Q

Stock bonus plans offer the same contribution and allocation formulas as profit sharing plan, true or false?

A

True

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16
Q

Most stock bonus plans provide what type of formula? They may adopt any allocation formula available to what two types of plans?

A

1 Discretionary contribution formula
2 Profit-sharing plans and money purchase plans

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17
Q

Stock bonus plans allow employers to make contributions in what form?

A

It’s own stock

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18
Q

An ESOP plan stands for what?

A

Employee Stock Ownership plan

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19
Q

An ESOP plan May be a (blank blank) plan or a combination of (blank blank) plan and this additional type of plan.

A

Stock bonus plan or combination of stock bonus plan and money purchase plan

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20
Q

An ESOP plan does not need to be designated to invest primarily an employer securities, True or false?

A

False. They must be designated in order to invest primarily in employer securities

21
Q

Contribution and allocation rules for a ESOP plan follow the same rules as these type of plans (blank)

A

Profit-sharing plans

22
Q

What are three pros to owners & key EEs by offering a defined benefit plan? (Such as a cash balance plan)

A

1Large Contributions (significantly greater than defined contribution plans)
2Tax sheltering
3Accumulate Larger Benefits (for owners and key employees)

23
Q

What is a con of defined benefit plans?

A

Contributions are required even when it’s a bad year for the plan sponsor.

24
Q

What does SEP stand for?

A

Simplified employer Pension

25
Q

There is always a trust established in an SEP?

A

False. SEPs do not require trusts.

26
Q

Employers just make contributions directly into (blank) for SEP plans?

A

IRAs established for employees under the SEP

27
Q

What are the two eligibility requirements for a SEP?

A

Age 21- maximum limit
Service- No minimum but a maximum of three out of five years worked.

28
Q

What are the two formulas available for SEP plans?

A

Pro Rata
Permitted disparity

29
Q

Compensation is capped at what amount for consideration for qualified plans in 2023?

A

$330,000

30
Q

What’s the minimum salary considered for an SEP plan?

A

In 2022 in the amount was $650

31
Q

The limit on employer contributions into an SEP plan is what?

A

The lesser of 25% of employee wages or $61,000

32
Q

How is the 25% of compensation calculated between SEP plans and PSP plans?

A

SEP plans-25% is based on each
Participants wages
Profit-sharing plans- 25% is based on an aggregate of Participants.

33
Q

Simple IRA stands for what?

A

Savings incentive match plan for employees- IRA

34
Q

How many employees can a business have and still offer a simple IRA?

A

Must have less than 100 employees that earn at least $5000 a year

35
Q

The law allows a (blank blank) grace period If an employer goes over 100 employees in a simple IRA

A

Two year grace period

36
Q

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?

A

True

37
Q

What are the only two exceptions which allow a company to offer a qualified plan in the same year as a simple IRA?

A

1A qualified plan for union members
2Transitional relief

38
Q

The simple IRA plan document does what?

A

Establishes the plan and authorizes contributions

39
Q

The simple IRA document does what?

A

Establishes the IRA vehicle which receives contributions on an employee’s behalf.

40
Q

What are the Employer contribution methods into a simple IRA?

A

A 2% NEC
3% match

41
Q

When and how can an employer reduce the match in a simple IRA?

A

Employer may reduce the 3% match to one percent two out of five years and a Simple IRA

42
Q

What is the compensation limit and how does it apply to employer contributions in a simple IRA?

A

The Limit of $330,000 for 2023, only applies to the non-elective contribution it does not apply to match.

43
Q

What are the penalties attached to early withdrawal’s in a simple IRA?

A

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

44
Q

403B plans are only available to what organizations?

A

501 C3 organizations

45
Q

Contributions in a 403B can only be made to what 3 investments pathways?

A

1Annuity contract through an insurance company
2Custodial account invested in mutual funds
3Retirement income account set up for church employees

46
Q

Because 403B’s originally could only be invested in annuity contracts, these plans were often referred to as what?

A

Tax sheltered annuity plans

47
Q

Because virtually all employees are eligible to participate in a 403B on their date of hire what tests are these plans exempted from?

A

ADP
Coverage testing

48
Q

ERISA plans Have what?

A

Employer contributions

49
Q

ERISA exempt plans feature what?

A

Employee deferral’s only
Limited involvement from employer

QKA-1 (11 decks)

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