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Retirement Plans Flashcards

(44 cards)

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1
Q

Defined benefit vs defined contribution

A

DB: employer assumes risk
DC: employee assumes risk

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2
Q

Defined benefit: pension plans

A

1) Defined benefit pension plan
2) Cash balance pension plan

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3
Q

Defined Contribution: pension plan

A

1) money purchase pension plan
2) target benefit pension plan

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4
Q

Profit sharing plans

A

No mandatory funding
All are defined contribution plans
Ex: profit sharing, stock bonus plan, ESOP, 401k, thrift plan, age based profits sharing

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5
Q

Qualified plan eligibility

A

Age 21 and 1 year of service

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6
Q

Qualified plan coverage tests (ACP test)

A

Needs to pass 1 of 3 tests to qualify
1) average benefits test
2) ratio test
3) safe harbor test

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7
Q

Average benefits test

A

Avg benefits of NHC / avg benefits of HC
Needs to be at least 70%

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8
Q

Safe Harbor Test

A

More than 70% of NHC are covered

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9
Q

Ratio % test

A

% of NHC covered / % of HC covered
Needs to be at least 70%

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10
Q

Highly compensated employee

A

At least 5% owner OR
comp in excess of $150k (unless top 20%)

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11
Q

Key employee

A

At least 5 % owner
At least 1% owner and comp over $150k
Officer and comp over $215k

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12
Q

Top heavy plans

A

60% of benefits attributable to key employees

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13
Q

Top heavy
Defined contribution plans

A

Employer must provide non key employees a contribution of at least 3% of comp

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14
Q

Top heavy
Defined benefits

A

Employer must contribute 2% per years of service (20% max) x annual comp
Vesting schedule must increase

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15
Q

Defined contribution plan
Vesting

A

Deferrals 100% vested
Noncontributory: 2-6 graduated or 3 year cliff

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16
Q

Defined benefit plan
Vesting

A

3-7 year graduated
Or 5 year cliff

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17
Q

Covered comp for Qualified plans

A

$330k

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18
Q

Defined benefit plan limits

Study These Flashcards
A

Lesser of $265k or 100% of 3 year avg salary

19
Q

Plan limits
Defined Contribution

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A

Lesser of $66k or 100% of comp
Total: employer, employee and forfeitures

20
Q

Stock bonus plan

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A

Profit sharing plan
Employer contributes stock to plan

Net unrealized appreciation

21
Q

Nonqualified retirement plans

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A

Benefit to group of employees without limitations of qualified plans
No tax advantages
Deferral of income

22
Q

Phantom stock

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A

Fictional shares, later stock is valued and receives increase in value as compensation

23
Q

Stock options

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A

The right to buy stock at specified price for specified time period
Option price = FMV at date of grant

24
Q

Incentive Stock Options (ISO)

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A

Ties employe s benefit to a stock
Up to $100k per year
Qualified: hold for 2 years from grant and one year from exercise

25
Taxation of ISO
Grant: no taxable income Exercise: no regular tax, AMT adjustment Sale: LTCG on appreciation, AMT adjustment
26
83B election
Employee elects to include value of stock in taxable income at date of grant instead of vesting date Gain over grant price is capital gain
27
Actual Deferral Percentage (ADP test)
Limits employee elective deferral for HC based on elected deferrals of NHC
28
Failed ADP test
1) corrective distributions 2) recharacterize contributions (pre to after tax) 3) qualified non elective contribution 4) qualified matching contribution
29
Rabbi Trusts
NonQualified Deferred Comp Plan Funds not available to employer but available to employers creditors under bankruptcy Not currently taxable due to Forfeiture risk
30
Actual Deferred Percentage (ADP) test
ensures highly compensated employees are not contributing too much more than NonHighly Comp if NHC contribute 0-2%, HC are able to do 2x If NGC contribute 2-8%, HC are abe to do 2% + If NHC contribute 8% +, HC are able to do 1.25%
31
Defined Benefit 50/40 test
defined benefit plan must satisfy 50/40 test DB plan must benefit lesser of 50 eligible employees or 40% of all eligible employees
32
Advantages of Qualified Plans to Employer
- Employer contributions are tax deductible - Employer contributions not subject to payroll tax
33
Advantages of Qualifies Plans to Employees
- Pre tax contributions - Tax deferral of earnings - ERISA protection - Lump sum distribution options
34
457 Plan
NQ plan allows employees of state, local Gov & NonGov TaxExempt employees ability to defer comp free from tax Allows for Final 3 year catchup of $22,500
35
Fringe Benefits
form of comp where benefit other than taxable wages is provided by employer used to increase employee total compensation without increasing taxable income
36
taxation of Fringe Benefits
taxable as wages unless specific provision IRC excludes OR employee pays fair value for it
37
Fringe Benefits: Adoption Assistance
$15,950 benefit Phase Out: $239,230 - $279,230
38
Fringe Benefits: Education Assistance Program (Amount)
$5,250
39
Fringe Benefits - Group term Insurance (Amount)
$50k excluded from taxable income
40
Net Unrealized Appreciation (NUA)
NUA = FMV at date of distribution - Value of securities at date of Employer Contribution Distribution: taxed on employers contribution Sale of securities: LTCG on NUA (if taken as Lump sum) recognize additional growth above NUA
41
403(B) Plan CatchUp Contributions
1) Age 50 Catch-up Provision: Additional $7,500 contribution if over 50 2) 15 Year Rule Exception: $3k additional contribution for business in Health, Education or Religious Org (HER) Able to defer max $33k
42
457 Catch Up Contributions
Final 3 Year: for Public & Private 457 Plans- 3 years before normal retirement age able to contribute additional unused Max deferal amounts Age 50 Catchup: not available for private 457s, only public 457s
43
SEP
Simplified Employee pension - no salary deferrals, employer contributions ONLY - can be integrated with SS - max contribution: 25% or $20k per employee
44
Simple IRA max contribution
100% salary up to $15,500 Company match up to 3% of salary

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