Ch. 16 Money Purchase Pension Plan Flashcards Preview

Employee Benefit Final > Ch. 16 Money Purchase Pension Plan > Flashcards

Flashcards in Ch. 16 Money Purchase Pension Plan Deck (15):
1

Money purchase pension plan is a qualified retirement plan where.... (4)

1. each employee has an individual account
2. only the employer contributes to each employee account
3. plan benefits are a result of employer contributions, interest, dividends, and/or capital gains
4. an employee account may be paid out as an annuity equivalent in value to the account balance

2

When is it indicated? (5)

1. employer wants a simple and easy to explain qualified plan
2. young employees
3. employees willing to accept investment risk
4. some retirement income security is desired
5. an employer wants to reward long-term employees

3

5 advantages

1. tax deferred savings
2. simple and inexpensive
3. employer annual contribution of 100% employee comp or $49,000
4. tax deduction limited to 25% of covered payroll
5. individual participant accounts allow participants to benefits from good investment results in the plan

4

4 disadvantages

1. benefits may be inadequate for older plan entrants
2. limited annual addition to each account
3. employees bear investment risk
4. employer must make plan contributions each year or face penalties

5

Benefit formulas

a flat % based on an employee's compensation up to 25%---typically 15%

6

What do service related factors favor?

owners
key and HCE

7

What can the employer do to avoid discrimination?

comply with safe harbor rules
satisfy general nondiscrimination tests
restructure the plan
use cross-testing

8

What can the plan benefit formula be integrated with?

social security

9

___ year "cliff vesting" provisions is often used

3

10

When are benefits usually paid?

at the termination of employment or a plan's stated normal retirement age

11

What must be provided as the automatic form of benefit?

joint and survivor annuities

12

What is a popular alternative to annuities?

lump sum or installment plan

13

There are no 'in-service' distributions unless due to....

death/disability
severance of employment
termination of plan

14

What can contributions be vested in?

trust fund, group insurance, individual insurance contract, or a pooled account managed by the empoloyer

15

Subject to ERISA?

yes