Ch. 21 Cross-Tested/Age-Weighted Plan Flashcards Preview

Employee Benefit Final > Ch. 21 Cross-Tested/Age-Weighted Plan > Flashcards

Flashcards in Ch. 21 Cross-Tested/Age-Weighted Plan Deck (17):
1

Cross-Tested/Age-Weighted Plan

Allows a higher plan contribution for older plan entrants

2

What is the formula for annual employer contributions based on?

employee's age and compensation level

3

Employer's contributions tend to be weighted towards who?

owners and key employees

4

When is it indicated?

- older business owners and key employees of closely held companies
- minimize costs
- max contributions

5

6 Advantages

1. max retirement benefits for older employees
2. older and key employees receive a larger portion of plan allocation
3. tax-deferred savings
4. simple
5. 10 yr averaging
6. participants benefit from good investment returns

6

5 disadvantages

1. limited annual additions
2. employees bear investment risk
3. uncertain benefits because annual contributions are not required
4. must meet minimum funding standards each year
5. may require annual actuarial services

7

Cross-Tested Plan Design

designed to meet nondiscrimination requirements

8

cross-testing rules are _____

complex

9

Cross-testing steps

1. the plan must satisfy a "gateway" requirement
2. project the contribution to each participant's age of 65 at an assumed interest rate
3. test the projected benefit
4. when more than one HCE, break into "rate groups" to test for nondiscrimination

10

Why can a cross-tested plan be unstable?

the age of new employees can make the plans impractical and necessitate a new plan

11

The plan becomes costly or impractical if it has...

1. a relatively large number of older rank and file employees vs HCEs
2. a relatively large number of HCEs who are young

12

how often do cross testing plans be analyzed?

at least as often as new employees join the plan

13

The plan inhibits the hiring of ____ employees

older

14

3 Advantages of age-weighted profit sharing plan

1. actuarial formula
2. automatically passes cross-testing test
3. reduces complexity and cost

15

2 disadvantages of age-weighted profit sharing plan

1. difficult to communicate
2. younger employees may deem larger contributions

16

a profit sharing plan does not have ....

minimum annual funding requirements

17

3 disadvantages of age-weighted pension plan

1. no guarantee of the fund balance
2. difficult to communicate
3. employers must fund these accounts annually