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Flashcards in Retirement – 47 Deck (76)
1

(47.3) Eligibility for qualified plans

- One year service or two years with full vesting
- 21 years of age
- maximum of 1000 hours for one year of service

2

(47.3) Eligibility for SEP plans

- 3 out of the last 5 years of service
- 21 years of age
- minimum of $550 compensation for each year of service

3

(47.3) Eligibility for SIMPLE (IRA)

- $5000 earned in 2 previous years and expected to earn $5000 in the current year
- includes those under age 21

4

(47.3) Coverage test for qualified plans – Sec. 410(b): The three coverage test

1) percentage test
2) ratio test
3) average benefits test

5

(47.3) Coverage test for qualified plans – Sec. 410(b): what is the percentage test?

The plan must benefit at least 70% of non-highly compensated employees.

6

(47.3) Coverage test for qualified plans – Sec. 410(b): what is the ratio test?

The percentage of non-highly compensated employees covered by the plan must be at least 70% of the percentage of the highly compensated employees covered.

6

Defined-benefit plans minimum participation – Sec. 401(a)(26): Under this test, the plan must cover at least ___ employees or ___ of all employees, whichever is less. If the company has only two, three, or four employees, the defined-benefit plan must cover at least ___ employees. If the company has only one employee, the plan must cover the ___ employee.

50
40%
Two
One

7

Cliff vesting is provided after ___ years of service.

Three

9

(47.5) Cliff vesting is provided after ___ years of service.

Three

10

(47.6) Graded vesting provides for ___ of the employer contributions to become vested after the second year of service and ___ for each year after that. This makes an employee fully vested after __ years of service.

- 20%
- 20%
- 6

11

(47.6) The traditional defined benefit plan has a ___ cliff vesting and ___ graded vesting (cash balance plans must follow the ___ cliff or ___ graded schedule).

- 5-year
- 3- to 7-year
- 3-year
- 6-year

12

(47.6) These plans provide immediate 100% vesting in return for their simplified reporting requirements.

SEP & SIMPLE plans

13

(47.7) Discrimination testing (ADP testing) for 401(k) plans – Sec. 401(k)(3): If the percentage deferred by non-HCEs is less than 2%, then the actual percentage of compensation deferred by HCEs in the current year cannot me more than ___% of the percentage of compensation deferred by non-HCEs in the previous year.

200%

14

(47.7) Discrimination testing (ADP testing) for 401(k) plans – Sec. 401(k)(3): If the percentage deferred by non-HCEs is between 2% and 8%, then the actual percentage of compensation deferred by HCEs in the current year cannot be more than the percentage of compensation deferred by non-HCEs in the previous year, plus ___%.

2%

15

(47.7) Discrimination testing (ADP testing) for 401(k) plans – Sec. 401(k)(3): If the percentage deferred by non-HCEs is 8% or more, then the actual percentage of compensation deferred by HCEs in the current year cannot be more than ___% of the percentage of compensation deferred by non-HCEs in the previous year.

125%

16

(47.8) Matching contributions (ACP testing) for 401(k) plans – Sec. 401(k)(3): Match 100% of employee's contributions up to ___, and 50% of employee's contributions between ___ & ___ of compensation.

3%
3% and 5%

17

(47.8) The ADP test does not apply to?

Safeharbor 401(k) plans
SIMPLE 401(k) plans
elective employee deferrals in 403(b) plans for nonprofit entities

17

(47.7) The ACP test does not apply to?

Safeharbor 401(k) plans
SIMPLE 401(k) plans

19

(47.10) Integration of defined-benefit plans – Excess method:
1) if the base benefit percentage is ___% or more, the disparity can be a maximum of ___.
2) if the base benefit percentage is less than ___%, then the disparity can be no more than the base percentage.

1) 26.25%, 26.25%
2) 26.25%

20

(47.11) Integration of defined-contribution plans: If the integration level is set AT the taxable wage base, then there is a two-part test for permitted disparity.
1) if the base contribution percentage is ___% or more, then the disparity can be a maximum of ___%.
2) if the base contribution percentage is less than ___%, then disparity can be no more than the base percentage.

1) 5.7%, 5.7%
2) 5.7%

21

(47.2) Qualified plans must make employees eligible to participate after they reach the age of __ or reach __ year of service (whichever is later) and include them in the plan within __ months of reaching these milestones.

- 21
- one
- 6

22

(47.3) Highly-compensated employees are defined as those owning more than __% of the employer or those whose compensation exceeds $___ and who are among the __% highest-paid employees.

- 5%
- $115,000
- 20%

23

(47.3) If defined-contribution plans provide for employee elective deferrals, as well as nonelective employer contributions, only the __ are used in the coverage tests calculations for qualified plans.

nonelective employer contributions

24

(47.3) The percentage, ratio, and average benefits test apply to all ___.

qualified plans

25

(47.5) A defined-benefit plan must pass both the three coverage tests and the __ test.

minimum participation

26

(47.8) If MATCHING FUNDS are provided for elective employee deferrals in 403(b) plans for nonprofit entities., the 403(b) plan must meet the ___ test.

ACP

27

(47.9) ADP testing for 401(k) plans: If non-HCEs defer 8% or more, then HCEs can defer up to __% of the amount deferred by non-HCEs.

125%

28

(47.9) ADP testing for 401(k) plans: If non-HCEs defer between 2% and 8%, then HCEs can defer up to the same percentage, plus __%.

2%

29

(47.9) ADP testing for 401(k) plans: If non-HCEs defer less than 2%, then HCEs can defer up to __% of the non-HCEs.

200%

30

(47.9) 401(k) plans must meet the ___ coverage tests for qualified plans, ___ ADP tests, and the ___ test if an employer matches employee contributions.

three
one of three
ACP

31

(47.9) Controlled Groups: Aggregations is required when one entity owns __% of another entity or when the same ___ or fewer owners own __% of both entities, and __% of each entity is held by owners with identical holdings in the other entity.

- 80%
- five
- 80%
- 50%

32

(47.10) Under the excess method, the required integration level is the ___ for each employee.

covered compensation

33

(47.10) The average of the 35 years prior to retirement age of the wage base, assuming no increase past the current year.

covered compensation

34

(47.10) Integration defined-benefit plans – Excess method: The permitted difference is __ of __% for each year, with a maximum of __ years, or __%.

- 3/4
- 1%
- 35
- 26.25%

35

(47.10) Integration of defined-benefit plans – Offset Method: The defined-benefit is reduced by a percentage of the __ benefit that a participant will receive at age 65. The reduction can never be more than __% of the benefit.

- Social Security
- 50%

36

(47.10) Integration of ___.
1) if the base benefit percentage is 26.25% or more, the disparity can be a maximum of 26.25%.
2) if the base benefit percentage is less than 26.25%, then the disparity can be no more than the base percentage.

Defined-benefit plans – Excess method

37

(47.10) Integration of ___.
The defined-benefit is reduced by a percentage of the Social Security benefit that a participant will receive at age 65. The reduction can never be more than 50% of the benefit.

Defined-benefit plans – Offset Method

38

(47.11) Integration of ___.
1) if the base contribution percentage is 5.7% or more, then the disparity can be a maximum of 5.7%.
2) if the base contribution percentage is less than 5.7%, then disparity can be no more than the base percentage.

Defined-contribution plans

39

(47.11) The percentage of compensation contributed above the integration level.

excess percentage

40

(47.11) The percentage of compensation contributed below the integration level.

base percentage

41

(47.10 & 11) Excess percentage is equal to?

base percentage + disparity

42

(47.12) ___ contributions by employers to 401(k) plans cannot be integrated.

matching

43

(47.12) ___ contributions by employers to 403(b) plans cannot be integrated.

matching

44

(47.12) ___ contributions by employers to 403(b) plans CAN be integrated.

non-elective

45

(47.12) Can SEPs can be integrated?

Yes

46

(47.12) Name 3 plans that cannot be integrated.

SARSEP
SIMPLE
ESOP

47

(47.12) ___ can be advantageous in these circumstances:
1) Rank-and-file employees earn less than the taxable wage base and owner's income is substantially higher than the wage base
2) If the owner's age is not much different from the other employees
3) If the owner's age is younger than other employees

Integration

48

(47.12) Defined-contribution plan limits the additions to participant's defined-contribution account to the lesser of __% of compensation or $___.

- 100%
- $52,000

49

(47.12) Defined-benefit plan limits the maximum benefit to the lesser of $___ or ___% of the participant's average compensation for the three highest-paid consecutive years.

- $210,000
- $100%

50

(47.13) For qualified plans, the annual compensation limit is $___.

$260,000

51

(47.14) A qualified retirement plan is considered a top-heavy plan when more than __% of either the present value of the cumulative accrued benefits (defined-benefit plans) or the aggregate account balances (defined-contribution plans) are for the benefit of key employees.

60%

52

(47.14) When a plan is evaluated for coverage rules, the focus is on ___.

highly-compensated employees (HCEs)

53

(47.14) When a plan is evaluated for top-heavy rules, the focus is on ___.

key employees

54

(47.15) Define Highly-Compensated Employees (HCEs)

- Own more than 5% of the employer
- Employees whose compensation exceeded $115,000 in the previous year, and who are among the 20% highest-paid employees

55

(47.15) Define Key Employees

- Own more than 5% of the employer
- Officers of the company who earn more than $170,000 per year
- A 1% owner of the company with annual compensation of $150,000 or more

56

(47.15) HCEs or Key Employees: Own more than 5% of the employer

HCEs and Key Employees

57

(47.15) HCEs or Key Employees: Employees whose compensation exceeded $115,000 in the previous year, and who are among the 20% highest-paid employees

HCEs

58

(47.15) HCEs or Key Employees: Officers of the company who earn more than $170,000 per year

Key Employees

59

(47.15) HCEs or Key Employees: A 1% owner of the company with annual compensation of $150,000 or more

Key Employees

60

(47.15) When a plan is top-heavy, all participants must fully vest in all benefits after __ years or must vest a least __% after __ years and __% for each year after that (__ years for full vesting).

- 3
- 20%
- 20%
- 6

61

(47.15) When a defined-benefit plan fits the definition of a top-heavy plan, then each non-key participant must receive an accrued benefit at least equal to the average of the five highest-paid years, multiplied by __% for every year the plan is top-heavy, up to __ years (with a maximum of __% times the average of the highest-year salaries).

- 2%
- 10
- 20%
- five

62

(47.15) If a plan is "super-top-heavy" and has __% of the accrued benefits or participant accounts allocated to key employees, then the __% contributions to non-key employees in defined-contribution plans go up to __%.

- 90%
- 3%
- 4%

63

(47.15) If a plan is "super-top-heavy" and has __% of the accrued benefits or participant accounts allocated to key employees, for non-key employees in defined-benefit plans, the average of the ___ highest-paid years is multiplied by __%, instead of __%.

- 90%
- 3%
- 2%

64

(47.15) The top-heavy rules do not apply to?

SIMPLE IRAs
SIMPLE 401(k)
Safe harbor 401(k)

65

(47.16) Top-Heavy Plans: Characteristics - 60% of account balances benefit key employees

Defined-Contribution Plans

66

(47.16) Top-Heavy Plans: Characteristics - 60% of the present value of accrued benefits are for key employees

Defined-Benefit Plans

67

(47.16) Top-Heavy Plans: Consequences - Contributions must be at least 3% of each employee or the percentage for key employees, if lower.

Defined-Contribution Plans

68

(47.16) Top-Heavy Plans: Consequences - Annual accrual of benefits for non-key employees must be equal to the average income for the top 5 years, times 2% per year for each year the plan is top-heavy, up to 20% maximum

Defined-Benefit Plans

69

(47.16) Top-Heavy Plans: Consequences - Vesting must be 3-year cliff or 6-year graded.

Defined-Contribution & Defined-Benefit Plans

70

(47.16) Loans from Qualified Plans: Name plans that can include loans if plan documents are incorporated, but prohibits withdrawals.

- 401(k) plans
- tax-sheltered annuities
- pension plans (money-purchase, target benefit, and defined-benefit plans)

71

(47.16) What plan already allows withdrawals (do not need plan documents for loans)?

Profit-sharing plans

72

(47.16) What two plans do not allow loans?

SEP
SIMPLE IRA

73

(47.16) Loans from qualified plans must be secured with a term not longer than __ years, unless the loan is for __.

- 5
- home mortgage

74

(47.17) Qualified plan loans: A plan participant may borrow the lesser of?

1) $50,000
2) Half of the vested account balance (defined-contribution plan) or half of the present value of the accrued benefit (defined-benefit plan)

75

(47.17) A minimum loan amount of $___ is permitted even when this amount is more than one-half of the participant's vested balance.

$10,000

76

(47.17) If a plan loan is determined to be a "prohibited transaction," a __% penalty fee will be imposed.

15%