Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Retirment Planning > Qualified Plans > Flashcards

Qualified Plans Flashcards

1
Q

What are the 4 types of pension plans?

Hint: there are two each of two different types.

A

Defined Benefit Plans

  • Defined Benefit Plans
  • Cash Balance Plans

Defined Contribution Plans

  • Money Purchase Plans
  • Target Benefit Plans
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 7 types of profit sharing plans?

A
  • Profit sharing plans
  • Stock bonus plans
  • Employee stock ownership plans (ESOPs)
  • 401(k)
  • Thrift Plans
  • New comparability plans
  • Age-based profit sharing plans.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Is a 403(b) a qualified plan?

A

No.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the legal premises of pension and profit sharing plans?

A
  • Pension plans pay a benefit for life.

- Profit sharing plans are based on deferral of compensation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Do pension and profit sharing plans allow in-service withdrawals?

A

Pension plans generally don’t, but defined benefit plans do after age 59.5.

Profit sharing plans do after 2 years (if plan allows).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Are pension plans and profit sharing plans subjected to mandatory funding rules?

A

Pension plans - yes.

Profit sharing plans - no.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What % of the plan can be invested in employer securities?

A

Pension plan - 10%

Profit sharing plan - up to 100%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Must the plan provide joint and survivor annuities?

A

Pension - yes

Profit sharing - no.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Can pension plans be either defined benefit or defined contribution?

Can profit sharing plans?

A

Yes

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the contribution limits for defined benefit and defined contribution plans?

Who assumes the risk?

Are accounts co-mingled or separate?

A

DC Plans:

  • contribution limit = 25% of covered comp.
  • Employee assumes risk.
  • Accounts are individual and separate.

DB Plans

  • contribution limit = Not less than the unfunded current liability.
  • ER assumes risk.
  • Accounts are co-mingled.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How are forfeitures allocated between DB and DC plans?

Can you be given credit for prior service?

Are the plans subject to PBGC coverage?

A

DB plans:

  • Forfeitures are used to reduce plan costs.
  • You can get credit for prior service
  • Covered by PBGC

DC plans:

  • Forfeitures can be used to pay costs or given to employees.
  • No credit for prior service
  • No PBGC coverage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the advantages of qualified plans?

A

For the ER:

  • No payroll tax on contribution.
  • Tax deduction for for contribution.

For the EE:

  • Pre-tax contribution opportunity.
  • Tax deferred earnings
  • ERISA protection.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the ER trade-offs for the tax advantages of QP’s?

A

They agree to vesting, funding, eligibility, and non-discrimination compliance guidelines by the IRS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are employee payroll taxes?

What are employer payroll taxes?

What is the tax break for qualified plan contributions?

A
  • 6.2% OASDI on income up to $142,800 for 2021.
  • 1.45% Medicare on all income.
  • Additional .9% Medicare tax on incomes over 200k single, 250k MFJ

ER’s are required to match the first two, but not for contributions to qualified plans up to 25% of covered comp for both ER’s and EE’s so 15.3% tax savings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When are qualified plan assets NOT protected from creditors?

A
  • Divorce, child support (QDRO)
  • Federal tax levy
  • Crime related to plan.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How are the protections of qualified plans from the protections of IRA’s?

Note: IRA types include traditional, Roth, SEP and SIMPLE.

A

Qualified plans are protected under ERISA.

A 2005 bankruptcy protection act covers IRAs.

17
Q

What are the disadvantages of QP’s?

A
  • Limited investment options.
  • No or limited access to money while working.
  • Distributions taxed as OI
  • Early withdrawal penalties.
  • Mandatory distributions at 72.
  • No step-up basis at death.
  • Income and estate taxes at death
18
Q

What are the 4 requirements for qualified plans?

A

Eligibility, coverage, vesting, plan funding limits.

19
Q

What is the standard eligibility requirement for QP’s?

A

Age 21 + 1,000 hrs in 12 mos.

20
Q

Beginning in 2021, how do LT part-time employees become eligible?

A

500+ hrs/yr for 3 consecutive years.

Yrs begin in 2021, earliest eligibility in 2024.

21
Q

What are QP plan entrance date requirements?

A

No employee has to wait more than 6 months past the time they become eligible to enter the plan.

Therefore, most plans have 2 entrance dates/yr.

22
Q

What is the 2-year exception for plan entrance dates?

Are 401k’s eligible for it?

A

A plan may require an employee to wait 2 years to become eligible, but if they do this, they must be 100% vested when they enroll.

401k’s cannot do this.

23
Q

What are the 3 coverage tests for a qualified plan?

A
  1. the general safe harbor test, ≥ 70% of eligible NHCs are covered.
  2. The ratio % test (or the people test) % of NHC covered ÷ % HC covered ≥ 70%
  3. Average benefit % test
    - AB% NHC ÷ AB% HC ≥ 70%.
    - Nondiscriminatory test.
24
Q

Who are HC employees?

A
  • > 5% owner (including family attribution), current year OR PREVIOUS YEAR.
  • Earns more than $130,000
25
Q

What is the special election employers can make about how to define HC’s?

What about > 5% owners in the special election?

A

They can stipulate that anyone who is over the income limit and in top 20% of compensated employees is HC.

> 5% owners are always HC.

26
Q

What is the additional test that DEFINED BENEFIT plans must pass to be qualified?

A

The 50-40 test. They must cover the lesser of 50 people or 40% of their employees.

27
Q

What is vesting?

What are always 100% vested?

A

Vesting is the transfer of ownership of plan assets from employer to employee.

EE contributions and their earnings are always 100% vested.

28
Q

What are the 2 DC plan vesting schedules?

What if the 2-year election is used?

A

For DC plans, the 2 vesting schedules are 2-6 year graduated, and 3-year cliff. Under 2-6 year graduated, employee gains 20% ownership every year from years 2-6.

Under 3-year cliff, EE is 100% vested after 3 years, not vested at all before.

EE’s are always 100% vested if 2-year election is used.

29
Q

What are the vesting schedules for DB plans?

What if the plan is top-heavy?

What about Cash Balance plans?

A

DB plans use either 3-7 year graduated or 5-year cliff.

Top heavy plans must use 2-6 year graduated or 3-year cliff.

Cash Balance plans must use 3-year cliff.

30
Q

Can a plan vest faster than the vesting schedules allow?

A

Yes, as long as the employee is more vested than BOTH vesting schedules at every year.

31
Q

When do ‘years of service’ begin for vesting purposes?

What years don’t count?

A

Years of service begin when EE is hired, NOT when they become eligible.

You don’t have to count yrs b4 ER had a plan, or years when EE was under 18 and did not contribute, or years when he didn’t contribute to employee contributory plan.

32
Q

What is a key employee?

What is the term ‘key employee’ used for?

A

A key employee is

  • > 5% owner
  • > 1% owner with salary in excess of 150k
  • An office with compensation in excess of 185k

A key employee is used to determine if a plan is top-heavy.

33
Q

What makes a plan top heavy?

A

For DB, > 60% of accrued benefits are for key employees.

For DC, > 60% of acct. balances are for key employees.

34
Q

What must a top-heavy plan do?

A

If DB, use 2-6, and 3-cliff vesting + provide benefit to non-keys of .02 x years of service x compensation over testing period.

If DC, a contribution = to the lesser of 3% compensation or that of key employees.

35
Q

What is the maximum benefit of the DB plan for one year?

A

Lesser of: 230K or average of 3 highest salary years (within covered comp limit).

36
Q

What is the maximum PER PARTICIPANT contribution to a DC plan?

A

Lesser of: 100% of their wages or 58k (+ 6,500 catch-up for 50+).

37
Q

What is the maximum ER contribution to a DB plan?

A

25% of total comp.

25% of covered comp. is the max they can deduct.

38
Q

What are Controlled Groups?

What is the ownership % that determines a controlled group?

A

Businesses that are lumped together for qualified plan rules:

  • Parent and subsidiary companies (80% ownership)
  • Brother-sister companies (5 or fewer people own 80% of stock in two companies).
  • Combined group (3 or more companies in multiple parent/subsidiary, brother/sister relationships).

Retirment Planning (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions