Qualified Plan Limits

Question 1

What are the two main types of qualified retirement plans?

Answer 1

Defined Benefit (DB) Plans and Defined Contribution (DC) Plans.

Question 2

Name two examples of DB plans.

Answer 2

Traditional Pension Plans and Cash Balance Plans.

Question 3

Who bears the investment risk in a DB plan?

Answer 3

The employer.

Question 4

How is the benefit determined in a DB plan?

Answer 4

Based on salary and years of service.

Question 5

Are DB plan assets held in individual accounts?

Answer 5

No, they are commingled.

Question 6

Are DB plans covered by PBGC insurance?

Answer 6

Yes.

Question 7

Are actuarial calculations required for DB plans?

Answer 7

Yes, and mandatory funding is required.

Question 8

How are benefits typically paid in a DB plan?

Answer 8

As a lifetime annuity or lump sum.

Question 9

Name three examples of DC plans.

Answer 9

401(k), Profit Sharing, ESOPs.

Question 10

Who bears the investment risk in a DC plan?

Answer 10

The employee.

Question 11

How is the retirement benefit determined in a DC plan?

Answer 11

By the account balance at retirement.

Question 12

Are DC plan assets held in individual accounts?

Answer 12

Yes.

Question 13

Are DC plans covered by PBGC insurance?

Answer 13

No.

Question 14

Are actuarial calculations required for DC plans?

Answer 14

No, except at inception for target benefit plans.

Question 15

What is a key difference between pension and profit sharing plans?

Answer 15

Pension plans require mandatory funding; profit sharing plans do not.

Question 16

What is the maximum annual benefit for a DB plan in 2025?

Answer 16

Lesser of $280,000 or 100% of the average of the employee’s three highest consecutive years’ salary.

Question 17

What is the covered compensation cap for qualified plans in 2025?

Answer 17

$350,000.

Question 18

What is the employee elective deferral limit for DC plans in 2024?

Answer 18

$23,500.

Question 19

What is the age 50+ catch-up contribution limit for 401(k), 403(b), and most 457 plans in 2025?

Answer 19

$7,500

Question 19

What is the maximum annual addition to a DC plan in 2025 (all sources)?

Answer 19

Lesser of 100% of the employee’s compensation or $70,000.

Question 20

What is the special catch-up contribution limit for ages 60–63 in 2025?

Answer 20

$11,250 for 401(k), 403(b), and most 457 plans

Question 21

What is the maximum total contribution for a DC plan participant age 50+ in 2025?

Answer 21

$77,500 ($70,000 + $7,500)

Question 21

What is the DC plan contribution cap as a percent of covered compensation in 2025?

Answer 21

25% of covered compensation

Question 22

What is the highly compensated employee threshold in 2025?

Answer 22

$160,000

Question 23

What is the key employee threshold for top-heavy plans in 2025?

Answer 23

$230,000

Question 24

What is the IRA age 50+ catch-up contribution limit in 2025?

Answer 24

$1,000

Question 24

What is the IRA annual contribution limit in 2025?

Answer 24

$7,000

Question 25

What is the SIMPLE plan age 50+ catch-up contribution limit in 2025?

Answer 25

$3,500.

Question 26

What is the SIMPLE plan contribution limit in 2025?

Answer 26

$16,500

Question 27

What is the SIMPLE plan age 60-63 catch-up contribution limit in 2025?

Answer 27

$5,250.

Question 28

Who is responsible for funding in a DB plan?

Answer 28

The employer (mandatory funding).

Question 28

Who is responsible for funding in a DC plan?

Answer 28

Employer and/or employee (contributions defined)

Question 29

Is PBGC coverage available for all qualified plans?

Answer 29

Only for DB plans, not DC plans

Question 30

What is the main difference between DB and DC plans regarding investment risk?

Answer 30

Employer bears risk in DB; employee bears risk in DC

Question 31

What is a unique feature of profit sharing plans?

Answer 31

Employer contributions are discretionary

Question 32

What is a unique feature of pension plans?

Answer 32

Mandatory funding requirements