Ch. 17 Profit Sharing Plan Flashcards Preview

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Flashcards in Ch. 17 Profit Sharing Plan Deck (24):
1

Profit Sharing Plan

A defined contribution plan featuring a flexible, employer contribution provision

2

How can contributions be formed?

purely discretionary or some type of formula

3

Employer contributions are allocated to individual accounts on a _____ basis

nondiscriminatory

4

What do plan benefits consist of?

the amount accumulated in each participant's account at retirement or termination

5

How are plan benefits usually distributed?

lump sum or installment payments

6

When is it indicated?

employer profits vary year to year
employer wants incentive feature
Young employees willing to bear risk
Employer want to supplement an existing plan

7

5 advantages

1. max contribution flexibility
2. contributions can be made even if company has no profits
3. tax deferred retirement savings
4. Simple and inexpensive
5. participants benefit from good investment return

8

5 disadvantages

1. Benefits may be inadequate for employees entering the plan at later ages
2. limited funding available for HCEs
3. Employees bear investment risk
4. employer funding less predictable
5. closely held companies may have to open their books to employees

9

Discretionary contribution provision

employer can determine the amount each year

Can omit contribution in a given year but IRS requires "recurring and substantial" contributions

10

Formula provision

Specified amount contributed each year when the company has profits

11

How are "profits" usually defined?

profits determined on a before-tax basis

12

If the plan is drafted properly, it is possible for the employer to include a _______ provision if certain adverse financial circumstances occur

fail-safe

13

All plans must have a formula for ...... to ......

allocating employer contributions; participant accounts

14

Allocation ____ discriminate in favor of HCEs

cannot

15

Can it be integrated with social security?

yes

16

___% tax deduction limit for employer

25

17

____ are usually added to the remaining participants' accounts

forfeitures

18

When are benefits payable?

termination or retirement

19

Generally allow _____ distributions

in-service

20

Funds available for "in-service" distributions must be _____

vested

21

IRS usually requires a ___ year period before withdrawal

2

22

When will a 10% penalty apply?

distribution prior to age 59 1/2

23

What kind of funds qualify for in-service distribution?

medical emergencies, home repair, educational expenses

24

Taxation of the amount in the plan are deferred until _____

they are withdrawn