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Retirement Planning Flashcards

(58 cards)

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1
Q

Types of Defined Contribution Plans

A
  • Traditional Profit Sharing Plan
  • Section 401(k) Plan
  • Stock Bonus Plan
  • ESOP
  • Money Purchase Pension Plan
  • Target Benefit Pension Plan
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2
Q

All profit sharing plans are (DC/DB) plans

A

DC

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3
Q

Defined Contribution Plan Characteristics

A
  • Participant-directed accounts
  • Participant bears investment risk
  • No guaranteed final benefit amount
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4
Q

Defined Contribution Plan
Maximum Compensation Considered in Benefit Formula

A

$305,000

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5
Q

Defined Contribution Plan
Vesting

A

Must be at least as generous as 3-year cliff or 2-6 year graded

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6
Q

Defined Contribution Plan
Maximum Deductible Employer Contribution

A

25% of covered payroll

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7
Q

Defined Contribution Plan
Maximum Elective Deferral

A

$20,500

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8
Q

Defined Contribution Plan
Annual Additions Amount

A

$61,000

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9
Q

Vesting in a defined contribution plan starts on the date of:
- hire
- enrollment in the plan

A

hire

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10
Q

What’s included in the annual additions limit?

A
  • Employee deferrals
  • Employer contributions
  • Reallocated forfeitures
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11
Q

Defined contribution plans benefit (younger/older) participants

A

younger (more time to accumulate)

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12
Q

Defined contribution plans (do/do not) require mandatory employer contributions

A

do (not good for companies with uneven cash flow)

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13
Q

Traditional Profit Sharing Plan
Employer Contribution Requirements

A
  • flexible
  • no requirement for a contribution every year
  • contribution must be “substantial and recurring”; 3 out of last 5 years
  • 100% employer funded
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14
Q

Traditional profit sharing plans (do/do not) allow for hardship withdrawals and loans to participants

A

do

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15
Q

Traditional profit sharing plans may invest up to _____% in employer stock

A

100%

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16
Q

Traditional profit sharing plans (are/are not) subject to Qualified Joint and Survivor Annuity

A

are not

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17
Q

_____-________ traditional profit sharing plan can skew higher plan contributions to older participants

A

Age-weighted

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18
Q

Section 401(k) Plan
Participant Elective Deferrals

A

The lesser of:
- 100% of compensation
- $20,500

Ages 50+ can make additional catch-up contribution of $6,500/year

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19
Q

Section 401(k) Plan
Employer (is/is not) required to contribute annually

A

is not

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20
Q

Section 401(k) plans may invest in up to ___% company stock

A

100%

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21
Q

Participants in a Section 401(k) plan must be given at least ___ diversification alternatives

A

3

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22
Q

If an employee participates in multiple 401(k) plans at different jobs, the elective deferrals (are/are not) aggregated in applying the annual maximum

A

are

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23
Q

Employee contributions to a 401(k) plan are subject to (ACP/ADP) testing

A

ADP

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24
Q

Employer contributions to a 401(k) plan are subject to (ACP/ADP) testing

25
Money Purchase Pension Plan Employer Contributions
- mandatory - 100% employer funded - determined as a percentage of the employee's compensation
26
A money purchase pension plan may invest up to ___% in company stock
10%
27
A money purchase pension plan (is/is not) subject to Qualified Joint and Survivor Annuity
is
28
A money purchase pension plan (does/does not) allow(s) in-service withdrawals
no; not until age 62
29
Target Benefit Pension Plan Employer Contributions
- mandatory - 100% employer funded - actuary determines contributions based on participant age at plan entry
30
A target benefit pension plan (can/cannot) skew higher plan contributions to older participants
can
31
A target benefit pension plan uses an actuary (in the initial year/every year)
in the initial year
32
In a target benefit pension plan, the final benefit amount (is/is not) guaranteed
is not; it is a "target"
33
A target benefit pension plan may invest up to ___% in company stock
10%
34
In a target benefit pension plan, contributions (are/are not) adjusted each year
are not
35
Types of Defined Benefit Plans
- Traditional Defined Benefit Pension - Cash Balance Pension Plan
36
Defined Benefit Plan Characteristics
- guarantee final benefit - only qualified plans insured by Pension Benefit and Guaranty Corporation - Must have joint and survivor payout unless waived - No participant-directed accounts - Sponsor bears investment risk - Annual actuarial work required - Must satisfy 50/40 rule - No predetermined maximum deductible employer contribution
37
Defined Benefit Plan Maximum Annual Pension
$245,000
38
Defined Benefit Plan Maximum Compensation Considered in Benefit Formula
$305,000
39
Defined Benefit Plan Vesting Schedule
Must be at least as generous as 5-year cliff or 3-7 year graded *Cash balance plan may only use 3-year cliff
40
Defined Benefit Plan Suitabilty
- benefit guarantees are desired - PBGC insurance coverage is needed - skew benefits to older participants
41
Defined Benefit Plan Funding Limits
"whatever it takes" to provide guaranteed benefits
42
Traditional Defined Benefit Pension Plan
- guarantees a monthly pension - older, higher earning participants can have substantial funding on their behalf - typically uses a formula based on number of years of service - no individual accounts - accruing a benefit of any amount is "active participation" for IRA deduction purposes
43
Traditional Defined Benefit Pension Plan Disadvantages
- expensive - mandatory annual funding
44
Cash Balance Pension Plan
- guarantees a specific cash balance at the plan's stated normal retirement age - "hypothetical" participant accounts for record-keeping; not participant-directed - each year, participant accrues a plan contribution based on a "pay credit" (percentage of compensation) plus an "interest rate credit" - provides uniform benefit accrual for all employees - participant can convert guaranteed cash balance into lifetime pension - considered easier for participants to understand than a traditional defined benefit pension plan
45
Cash Balance Pension Plan Vesting Schedule
Can only use 3-year cliff vesting, or better
46
A tax-advantaged salary reduction retirement plan often used by Section 501(c)(3) tax-exempt organizations
403(b)/TSA
47
Section 403(b) Plan Employee Deferrals
- Up to $20,500 per year - Ages 50+ catch up contribution of $6,500
48
Section 403(b) Plan Special Catch Up
- Employees with a minimum of 15 years of service with sponsoring employer - Additional deferral of up to $3,000 per year - May be used in the same year as the 50+ catch up
49
Section 403(b) Plan RMD Age
72
50
Section 403(b) Plan Early Withdrawal Penalty
10% if distributed prior to 59 1/2
51
Section 403(b) Plan Aggregation
Aggregated with other plan deferrals in applying annual maximums
52
403(b) Plan Investment Options
Only mutual funds and annuities
53
Tax-advantaged salary reduction retirement plan used by government and certain non-profit agencies
Section 457 Plan
54
Section 457 Plan Employee Deferrals
- Up to $20,500 per year - Ages 50+ get a $6,500 catch up
55
Section 457 Plan Special Catch Up
- Available for last three years of service (at normal plan retirement age) - Unused deferrals from past service - Up to twice the normal contribution limit ($41,000) per year - The age 50+ catch up may NOT be used in the same tax year as the special catch up
56
Section 457 Plan RMD Age
72
57
Section 457 Plan Aggregation
Not aggregated with other salary deferrals in applying annual maximums
58
Section 457 Plan Active Participant Status
Not considered an "active participant" for IRA deduction purposes

CFP Flashcards (9 decks)

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