Flashcards in Ch. 21 Cross-Tested/Age-Weighted Plan Deck (17):
Allows a higher plan contribution for older plan entrants
What is the formula for annual employer contributions based on?
employee's age and compensation level
Employer's contributions tend to be weighted towards who?
owners and key employees
When is it indicated?
- older business owners and key employees of closely held companies
- minimize costs
- max contributions
1. max retirement benefits for older employees
2. older and key employees receive a larger portion of plan allocation
3. tax-deferred savings
5. 10 yr averaging
6. participants benefit from good investment returns
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
Cross-Tested Plan Design
designed to meet nondiscrimination requirements
cross-testing rules are _____
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
Why can a cross-tested plan be unstable?
the age of new employees can make the plans impractical and necessitate a new plan
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
how often do cross testing plans be analyzed?
at least as often as new employees join the plan
The plan inhibits the hiring of ____ employees
3 Advantages of age-weighted profit sharing plan
1. actuarial formula
2. automatically passes cross-testing test
3. reduces complexity and cost
2 disadvantages of age-weighted profit sharing plan
1. difficult to communicate
2. younger employees may deem larger contributions
a profit sharing plan does not have ....
minimum annual funding requirements