Retirement Savings & Income Planning

Question 1

When are in-service withdrawals allowed for Pension and Profit Sharing Plans?

Answer 1

Pension Plans
- for workers age 62 and older

Profit Sharing
- anyone after 2 years

Question 2

What are the maximum annual limits for DB and DC plans, and what do they mean?

Answer 2

Defined Benefit Plans

• 2021 max is $230,000
• the max benefit an EE can receive in a year is a maximum of $230,000

Defined Contribution Plans

• (2021) the lesser of 100% comp or $58,000
• the amount of money contributed to a DC plan (EE & ER combined) cannot exceed the lesser of 100% of the EE’s compensation or $58,000

Question 3

When the difference between a contributory and noncontributory plan?

Answer 3

Contributory
- EE can contribute to the plan
• 401ks, thrift plans, etc

Noncontributory
- ER pays for all of it
• most other pension plans, p-s plans, etc

Question 4

When must a qualified plan be established?

Answer 4

By the due date of their tax following deadline of that year including extensions
- in writing
- can be established for plans of a prior year
— ex) establish a plan by 4/15/2021 for 2020

Question 5

What classifies an employee as a Highly Compensated Employee?

Answer 5

1) the EE is a greater than 5% owner at anytime within current or preceding year
• they own 5.0%? -> not a HCE
• they own 5.1%? -> qualifies as a HCE
• a “5% owner” title means they own MORE than 5%

OR

2) compensation is > $130,000 in current or preceding year

• family ownership attribution applies
  • ex) husband owns 2% and wife owns 4% -> both classify as HCE’s

Question 6

What’s the “top 20% election”

Answer 6

Election that replaces the $130k comp rule for HCE qualification

Ranks EE’s from highest comp to lowest, and the top 20% of that list would be considered HCE’s
- could mean EE’s earning above $130k wouldn’t classify if they fall outside the top 20% list

Question 7

What classifies an EE as a Key Employee, and why would someone test for this?

Answer 7

Used for top heavy testing

1) an OFFICER with comp > $185k
2) a greater than 5% owner
3) a greater than 1% owner with comp > $150k

Question 8

What’s the general rule test (aka safe harbor test, aka percentage test)

Answer 8

The first coverage test for qualified plans

The number of non highly compensated employees covered by the plan divided by the number of non highly compensated employees ELIGIBLE to be covered by the plan must be greater or equal to 70%

NHC EE’s covered / # NHC EE’s eligible to contribute to plan = % >= 70%

Question 9

What’s the ratio test?

Answer 9

The percentage of non highly compensated employees must be greater or equal to 70% of all highly compensated employees covered by the plan

% NHC-EE’s / % HC-EE’s = % >= 70%

Question 10

What’s the average benefits percentage test?

Answer 10

The average benefit percentage for non highly compensated employees divided by the average benefits for highly compensated employees must be equal or greater than 70%

Avg Benefits % NHC-EE’s / Avg Benefits % HC-EE’s = % >= 70%

Question 11

What are the requirements for a DB/DC plan to be considered too heavy?

Answer 11

Top Heavy Defined Benefit
- if the present value of the accrued benefits for KEY EE’s is greater than 60% of all accrued benefits for all EE’s

Top Heavy Defined Contribution
- if the aggregate account balances of KEY EE’s is greater than 60% of the aggregate account balance for all EE’s

Question 12

What’s the funding requirements for top heavy DB/DC plans?

Answer 12

Top Heavy DB Plans
- MUST provide a minimum benefit accrual of 2% * # years of service capped at 10 years

• ex) DB provides for 1.5% * YOS * salary
— 5y’s; normal %, 7.5%; TH %, 10%
— 10y’s; norm %, 15%, TH %, 20%
— 20y’s; norm % 30%; TH %, 30%

Top Heavy DC Plans

• minimum contribution is 3% of total covered comp
• if the contribution for Key EE’s is < 3%, the contribution for non key EE’s can be = to contribution for Key EE’s

Question 13

What are the ADP/ACP tests, and what the % requirements for ADP & ACP testing?

Answer 13

ADP test
- compares pretax deferrals of HCE’s to NHCE’s

ACP test
- compares ER matching and EE after tax contributions of HCE’s to NHCE’s

% (for both tests)
• If ADP/ACP % for NHCE <=2%, max ADP/ACP for HCE is 2 * ADP/ACP of NHCE
• if % for NHCE is >2% but <=8%, max % for HCE is 2% + ADP/ACP% of NHCE
• if % for NHCE is > 8%, but 1.25 * % of NHCE

Question 14

What happens if a plan fails the ADP test?

Answer 14

Sponsoring employer has 2 options

1) a corrective distribution can be made (HCE)
— decreases ADP of HCE & is included in their gross income
— made in following tax year, w/ the excess contribution being corrected within 2.5 months or ER will pay a 10% penalty on amount not corrected

2) an additional contribution (NHCE)
— two methods, both 100% vested
— 1) qual. Matching c - extra C for NHCE who deferred
— 2) qual non elective c - extra C for all eligible NHCE regardless if they participated

Question 15

How can an employer avoids ADP/ACP testing and what are the matching/vesting requirements?

Answer 15

They can avoid the ADP/ACP testing by meeting the safe harbor 401k provisions

Employer contributions must be 100% vested at all times and must be done with either of the following schedules
— 1) 100% match up to 3% of deferred compensation, with 50% match for c’s between 3-5% of comp (if HCE, can’t exceed the % for NCHE’s)
— 2) match up to 100% of up to 4% of comp
— 3) a non elective contribution of 3% of comp to everyone eligible to participate in the plan even if they don’t

Question 16

What’s the covered compensation limit for qualified/tax advantaged plans, and what the one exception to that?

Answer 16

$290,000

The one exception is a SIMPLE IRA w/ a $-for-$ match of 3% compensation
• if the ER elects the non elective 2% contribution to all eligible EE’s in the plan (even if they don’t defer), then the S.IRA only considers the first $290k of compensation

Question 17

What’s the max benefit for defined benefit plans?

Answer 17

The lesser of

• $230,000 per year; or
• the average of the highest 3 consecutive years of compensation

Question 18

What’s the annual additions limit for defined contribution plans?

Answer 18

The lesser of

• $58,000; or
• 100% of EE’s compensation that year

INCLUDES

• ER contributions
• EE deferrals both pretax and after tax
• reallocated forfeitures

DOES NOT INCLUDE
- catch up contributions

Question 19

What happens when a DB is terminated

Answer 19

All non-vested amounts are immediately vested

Question 20

What type of QP is a cash balance plan?

Answer 20

Defined Benefit

- you BENEFIT from CASH

Question 21

What type of QP is a Money Purchase Plan

Answer 21

Defined Contribution Plan

- you CONTRIBUTE MONEY to a retirement plan

Question 22

What are the permitted reasons for a hardship withdrawal?

Answer 22

“My Disastrously Faulty Education Foreclosure”

M - Medical and funeral (unreimbursed)
D - Disaster (federally qualified)
F - First home purchase (not primary home)
E - Education
F - Foreclosure (on primary home)

Question 23

What qualifies as a qualified distribution from a Roth 401(k)? How are non-qualified distributions from a Roth 401(k) treated?

Answer 23

Must meet 2 tests

1) distribution is done 5 taxable years after January 1st of the year the first regular contribution is made; and

2) “DAD”
— D -> Death (pmt made to Benny/estate)
— A -> Attainment of age 59.5
— D -> Disability

• first time homebuyers exception DOES NOT APPY TO ROTH 401(k)‘a
• RMD RULES APPLY TO ROTH 401(k)’s LIKE THEY DO FOR TRADITIONAL 401(k)’s

Non qualified distributions are part return of contributions (excluded from taxes) and return of earnings (taxable) on a pro-rata basis. Other taxes may apply.

Question 24

What are the steps needed to calculate the contribution a SE/Keogh Plan?

Answer 24

1) Determine net Schedule C/Schedule K-1 income
— AKA self employment income

2) subtract deductible part of SE Tax
— income * .9235 * .0765 = ER share of SE tax

3) Multiply by table factor (usually 20%)
— 20% because it’s 25% / (1 + plan %)
— .25 / 1.25 = .2 = 20%

OR

1) Multiply net Sch. C/K-1 income by 18.6%
— not exactly, but it gets you close

Question 25

What are qualified distributions from a Roth IRA?

Answer 25

Considers two tests; the 5 year test (time test) and Purpose Test 1) 5 year rule / Time test — distribution is made after 5 taxable years in which the first regular contribution was made 2) Purpose test -> “Denver Area Fire Dept.” — Denver -> Death of participant — Area -> Age 59.5 — Fire -> First time home buyer (10k max) — Dept. -> Disability * NO COLLEGE FUNDING IN QUALIFIED DISTRIBUTION REASONS — Traditional IRA’s are ok for this

Question 26

How do you calculate how much of a deductible IRA contribution someone can make if within the phase out range?

Answer 26

(Upper Phaseout # - MAGI) / phaseout window * full amount of contribution Ex) active participant SP (mfj) w/ MAGI of $110,000 makes full $6k contribution - phaseout window is $105k-$125k * (125k - 110k) / 20k window * 6k C * (15k/20k) / 20k * 6k * .75 * 6k = $4,500 * $4,500 of contribution amount is deductible

Question 27

What distributions from a Roth IRA are taxable but NOT subject to 10% penalty?

Answer 27

“HUMS” H - Higher Education expenses U - Unreimbursed medical expenses in excess of 7.5% AGI M - Medical insurance premiums while unemployed S - Substantially equal periodic pmts

Question 28

Who qualifies as an EDB?

Answer 28

5 groups of people classify; 1) Spouses 2) Chronically ill people 3) Disabled people 4) non-spouse not more than 10 years younger than decedent owner 5) minor child of the decedent owner

Question 29

What are the RMD rules for Spouse EDB’s inheriting an IRA/QP before/after the decedents RBD?

Answer 29

BEFORE decedents RBD 1) roll over & treat as their own 2) distribute over their remaining single life expectancy, beginning when decedent would have attained age 72 3) 10 year rule AFTER decedents RBD 1) distribute over their remaining single life expectancy, beginning when decedent would have attained age 72 2) roll over and treat plan as their own

Question 30

What are the RMD rules for NON-Spouse EDB’s inheriting an IRA/QP before/after the decedents RBD?

Answer 30

Before RBD 1) distribute beginning the year following the year of death, over beneficiary’s life expectancy -1/y 2) 10 year rule AFTER RBD 1) continue distributions (decedent OR beneficiary’s LE -1/y) 2) 10 year rule

Question 31

What are the RMD rules for Designated Beneficiaries inheriting an IRA/QP before/after the decedents RBD?

Answer 31

BEFORE & AFTER RBD - 10 year rule, for both

Question 32

What are the RMD rules for “No Beneficiary/Beneficiary Only” inheriting an IRA/QP before/after the decedents RBD?

Answer 32

BEFORE RBD 1) 5 year rule AFTER RBD 1) a single lump sum 2) continue distributions (decedents life expectancy -1)

Question 33

What is the Required Beginning Date? In what scenario are multiple RMDs must be taken, and can participants in a QP delay their RMDs?

Answer 33

The RBD is the date the owner/participant of an IRA/QP must begin taking their RMD’s The RBD is April 1st the year AFTER the year in which the owner/participant attains age 72. - all subsequent distributions must be made by December 31st - the individual can always withdraw more than what is required (50% excise tax applies to any shortfall) If any part of the first distribution is delayed past Dec 31, then the remaining RMD must be taken up to April 1 the year after attaining age 72 & there must be 2 distributions in that calendar year Participants in QP’s & 403(b)’s may delay their RMDs if they are working past 72, until April 1 following the year of retirement - not allowed for IRA’s - not allowed for ppl who own 5% or more of the business sponsoring the retirement plan - only available for the CURRENT employers plan

Question 34

Who classifies as Designated Beneficiary?

Answer 34

Any person, or certain type of trust, determined by September 30th of the year following the participants death If it’s a trust, the beneficiaries will be designated beneficiaries as long as; - trust is valid under state law - irrevocable, or becomes so upon death - beneficiaries are identifiable from trust doc - appropriate documentation has been provided to plan admin

Question 35

What is a “no beneficiary” or “beneficiary only” designation? What does it mean?

Answer 35

A beneficiary to a participants IRA/QP that is NOT A LIVING PERSON - a charity - decedents estate - not a “see through” trust

Question 36

What’s the early withdrawal penalty for a SIMPLE IRA?

Answer 36

Early w/d’s inside of first 2 years - subject to 25% penalty Early w/d’s after 2 years - reverts to general 10% penalty Penalty % is applied to taxable portion and it does NOT include taxes

Question 37

When are early withdrawals from a QP/IRA not subject to 10% penalty (section 72t)?

Answer 37

1) attainment of age 59.5 2) distributions made to beneficiary/estate of participant due to their death 3) distributions made due to disability of participant 4) up to $5,000 per parent for birth or adoption of child under 18 (taxed but not penalized, can be repayed into plan) 5 distributions made as a series of substantially equal payments made at least annually over LE of owner 6) up to $100,000 as qualified disaster distributions (can be repayed) 7) for medical expenses exceeding 7.5% AGI

Question 38

What are the S.72t exceptions for QPs only?

Answer 38

- distributions made after a separation from service after age 55 - distributions made to qualifying family members pursuant to a QDRO

Question 39

How do you calculate if someone is FULLY insured?

Answer 39

Subtract their age from 22 to determine amount of credits they need to be fully insured - With a MINIMUM of 6 and a MAXIMUM of 40 Ex) a 26 year old is fully insured if they have at least 6 credits - 26-22 = 4, but 6 is the minimum * you earn 1 credit per $1,470 of earnings, to a yearly maximum of 4

Question 40

How many credits for Social Security can you earn in a year and how?

Answer 40

You earn 1 credit per $1,470 in annual earnings upon which Social Security taxes are paid, to a maximum of 4 credits per year

Question 41

Who is eligible for Survivorship Benefits under Social Security?

Answer 41

- Surviving Spouses age 60+ (FI only) - 100% - Divorced Spouses age 62 & over (FI only) - 100% - Spouse if caring for a child < 16 y/o (FI/CI) - 75% - unmarried child < 18y, or < 19y of full time HS student (FI/CI) - 75% - dependent parent (FI only) - 75-82.5% • $255 lump sum death benefit paid to widow(er) or child * divorced spouse must have been married to decedent for 10+ years and unmarried/remarried after 62 * this is the only type of payment a dependent parent can receive*

Question 42

Who is eligible for social security disability benefits?

Answer 42

- Disabled worker (100% PIA) - spouse/divorced spouse of disabled worker (50%) - unmarried child < 18, < 19 if in HS (50%) - unmarried child disabled before 22 (50%)

Question 43

What are the requirements to receive Social Security Disability benefits?

Answer 43

- 5 month waiting period - must meet the social security definition of disability — NO gainful employment — disability is expected to last at least 12 months or result in death

Question 44

What is your MAGI for determining amount of taxable social security benefits? How do you determine Provisional Income?

Answer 44

MAGI = AGI + tax exempt income Provisional Income = MAGI + 1/2 social security benefits

Question 45

How much of someone’s Social Security benefits are subject to taxation, if applicable, and what are thresholds?

Answer 45

If the taxpayers Provisional Income exceeds; • $25,000 - $34,000 (S) • $0 (MFS but didn’t live apart for entire yr) • $32,000 - $44,000 (MFJ) • up to 50% of social security benefit is taxable if inside the above thresholds • if provisional income is more than the above thresholds, up to 85% of Soc Sec benefits will be taxable

Question 46

What are the requirements for a defined benefit plan to NOT be forced to have PBGC coverage?

Answer 46

A traditional DB plan maintained by a PROFESSIONAL SERVICE EMPLOYER with 25 OR FEWER employees does not have to be covered by PBGC insurance PSC Employers are - “ADD AAA Engineers” - Architects, doctors, dentists - accountants, actuaries, attorneys - engineers

Question 47

What 3 factors have an inverse relationship in respect to plan costs for Defined Benefit Plans?

Answer 47

- investment returns - employee turnover - mortality

Question 48

What are some provisions and the matching requirement of a DB(k) plan?

Answer 48

- for ER’s with < 500 EE’s - combines a traditional DB plan with a 401(k) - EE’s get a guaranteed retirement benefit in addition to their own account they may defer a max of $19,500/y into - MUST include an auto enroll feature with a FULLY VESTED match on 50% of the first 4% of compensation deferred by an EE - EXEMPT from too heavy rules - more predictable costs and lower premiums for sponsoring employers - requires only 1 trust doc, F. 5500, SPD, and one set of statements - more simple and cost effective than sponsoring 2 separate plans

Question 49

What are the features of a Cash Balance Pension Plan?

Answer 49

A type of DEFINED BENEFIT PLAN - “you BENEFIT from CASH” • ER contributes $ to “hypothetical individual accounts” for plan participants — not actual individual accounts like a DC — ER has investment risk * guaranteed contribution level and minimum Interest Rate credit * MUST use 3 year cliff vesting * if plan investments exceed guaranteed IR % then the earnings can lower plan contributions

Question 50

When is a Cash Balance Plan Appropriate?

Answer 50

- EE group is relatively large, young, and is mostly middle income earners - EE group has concerns over security of retirement income - ER wants contribution flexibility (can either be a fixed % for everyone or higher for EE’s with longer LOS) -> FUNDING IS MANDATORY REGARDLESS — a disadvantage is that it doesn’t typically benefit older EE’s and benefits paid may be inadequate - ER wants a defined benefit plan but not something as expensive as a traditional DB plan

Question 51

What is a Fully Insured DB Plan/Section 412(e)(3) Plan?

Answer 51

It’s a traditional DB plan funded exclusively by cash value life insurance or annuity contracts under Tax Code Section 412(e)(3) * guarantees payment of a death benefit to plan beneficiaries * exempt from minimum funding standards UNLESS there’s an outstanding loan against the insurance policy funding the plan * eligible for simplified reporting req’s and not required to be certified by an actuary * ER transfers investment risk to a third party (IC) * ER must commit to premium payments

Question 52

What are some features of Money Purchase Plans?

Answer 52

A type of DEFINED CONTRIBUTION PLAN - you CONTRIBUTE MONEY • mandatory annual ER contributions to each EE’s account, subject to Ann. Add. Limit — lesser of 100% covered comp or $58k • contributions are made under a certain non discriminatory formula (fixed %/flat $) • ER can deduct contributions of up to 25% of total covered comp paid to EE’s • relatively simple and cost effective (no PBGC/no actuary) • EE’s cannot invest more than 10% of plan assets in ER stock • good for when workforce is young or a SE person w/ no EE’s — profit sharing plans are usually better choice

Question 53

What are the features of a Target Benefit Pension Plan?

Answer 53

A Defined Contribution plan that benefits older workers - “my CONTRIBUTION TARGETS a BENEFIT” - “a TARGET BENEFIT favors the OLD” * an ER used an actuary at the plans establishment to determine contributions to pay * each EE has their own account and bears investment risk * uses DC annual additions limit, but also has Money Purchase Plan similarities (can’t invest more than 10% in ER stock) * aims to pay a target benefit at normal retirement age, doesn’t guarantee it’ll get there * No PBGC insurance required, no recurring actuarial valuations

Question 54

What are requirements to cover employees under a SIMPLE 401(k)/IRA?

Answer 54

- ER has 100 or fewer EE’s - EE’s have earned at least $5,000 in any 2 preceding years and are reasonably expected to earn that amount in current year

Question 55

What are the requirements for an EE to be covered by a SEP IRA?

Answer 55

- at least 21 years old - worked for ER in 3 out of the last 5 years (part time work included) - earned more than $650 in compensation - not a member of collective bargaining units

Question 56

What are the matching requirements for SIMPLE IRA’s?

Answer 56

1) match $-for-$ 3% of employees compensation — ER can match as little as 1% in no more than 2 out of 5 years 2) make a nonelective 2% contribution to all eligible employees * the 3% match isn’t hamstring by the covered comp limit of $290k (like the 2% c is) — ex) EE defers $13,500 with a $f$ 3% match — $13,500 + (3% * $13,500) = $13,905

Question 57

How do you determine if someone is fully insured vs currently insured? What type of benefits do the beneficiaries of those types of people get?

Answer 57

Fully Insured - Age - 22 = credits needed to be FI (minimum of 6, max of 40 - survivor, disability, and retirement benefits available Currently insured - work backwards, start with most recent credits - must have 6 of the most recent 13 credits to be currently insured - SURVIVOR BENEFITS ONLY

Question 58

If you take social security benefits before FRA how much of a reduction in benefits do you get?

Answer 58

- 5/9th’s of 1% per month, for first 36 months before FRA - a 5/12th’s of 1% beyond 36 months - maximum reduction of benefits is 30% for a person w/ a FRA of 67 - max reduction of benefits is 20% for someone with a FRA of 65 ex) Fred has FRA of 65, he elects at 62 - 5/9 * 1 * 36 = 20% reduction ex) Fran has FRA of 66, she elects at 62 - 5/9 * 1 * 36 = 20% reduction - 5/12 * 1 * 12 = 5% reduction - Fran has a max benefit reduction of 25%

Question 59

Who is eligible for SS retirement benefits?

Answer 59

- retired workers (62+) - spouse of retired worker (62+) - divorced spouse (married 10y+, 62+ regardless of workers actual retirement) - unmarried children under 18/under 19 if in HS/any age if disabled before 22 and is a dependent of retiree - caretaker spouse of any age w/ dependent child under 16/child of any age disabled before 22

Question 60

What is/isn’t counted towards the annual additions limit?

Answer 60

Is counted towards AAL - employee elective deferrals - employer contributions - reallocated forfeitures* - employee after tax contributions Isn’t counted towards AAL - reinvested dividends - investment gains - catch up contributions *if forfeitures are used to reduce future employer contributions then they are NOT counted towards the AAL

Question 61

What’s the penalty for excess contributions into an IRA?

Answer 61

6%

Question 62

Are employee deferrals and employer contributions subject to payroll taxes?

Answer 62

EE deferrals subject to FICA/FUTA ER contributions are not

Question 63

What are some forbidden acts by fiduciaries according to ERISA?

Answer 63

- be paid for services to the plan, if already receiving full time pay from an ER/union whose EE’s are memebers of the plan - act in a transaction involving the plan on behalf of a party who’s interests are adverse to those of the plan or its participants/bennys - receive consideration to their own personal acct from any party dealing with the plan involving transactions of assets of the plan - cause the plan to engage in certain transactions with parties in interest - permit more than 10% of plan assets invested in ER securities or real property, excluding some p/s plans

Question 64

Which two plans are be covered by PBGC insurance?

Answer 64

Traditional DB plans and Cash Balance plans

Question 65

What is UBTI and what is/isn’t considered UBTI?

Answer 65

UBTI = unreleased business taxable income It’s income derived from any T/B that is regularly carried on and not related to a retirements tax exempt purpose (less deductions for said T/B) UBTI IS - usually arises from property purchase with borrowed funds (aka margin) ``` UBTI ISNT - dividend, interest income - royalties - incidental rents - gains from disposition of property • ESOPs specifically excluded ```

Question 66

Do 401ks require employer contributions and if so what tests must be satisfied?

Answer 66

No, they can be funded entirely by elective deferrals If there employer matching, the plan must satisfy both the ADP & ACP test

Question 67

How do you take a hardship withdrawal from a 401k

Answer 67

Must satisfy 2 tests and if satisfied the withdrawal can only be for qualified reasons The 2 tests • 1) Financial needs test - hardship is due to an immediate and heavy need • 2) Resources test - person doesn’t have other financial resources sufficient to cover the need If both tests are met the withdrawal can only be for; - pmt of unreimbursed med exp for W/Sp/Dep - purchase/repair of casualty loss of primary residence - pmt for up to 12m of higher Ed expenses for w/sp/dep - pmt to prevent foreclosure of primary res - burial/funeral expenses of W’s parents/sp/dep/kids - safe harbor (satisfies financial need)

Question 68

What happens when an employee makes a hardship withdrawal?

Answer 68

Employee has the right to make elective deferrals suspended H-W/D is taxed and possibly subject to 10% EWP

Question 69

Who supervises the creation of new, and monitors/audits existing, qualified plans?

Answer 69

The IRS

Question 70

Who governs the non tax aspects of RP’s/EE benefits? What are the QP requirements, and what are the 4 parts of it?

Answer 70

ERISA QPs must meet the following ERISA req’s - coverage - participation - vesting - reporting & disclosure - fiduciary requirements ``` ERISA’s four titles include - Workers rights - Tax code - regulatory & administrative framework - PBGC • “Way To Replace Pay” ```

Question 71

Who governs fiduciaries and what are the other responsibilities of this department?

Answer 71

Fiduciaries are governed by the DOL ``` They also have duties of • reporting & disclosure — summary plan description • defining prohibited transactions — ERISA prescribes certain PT’s — DOL issues PT exemptions • interpretation ```

Question 72

What’s Form 5500 and who requires it?

Answer 72

A reporting document required by ERISA Includes - detailed financial information - actuarial information (DB plans) - consolidates report forms of the IRS/DOL/PBGC

Question 73

What’s Form 5500-SF?

Answer 73

Reporting document for - plans with 25 or fewer participants - hold NO ER SECURITIES - 100% of assets are in invested in assets w/ readily determinable FMV - eligible for small plan audit waiver

Question 74

What’s Form 5500-EZ?

Answer 74

F. 5500 for small plans - for individual and/or spouse, or individual and/or their partner If all conditions are met and plan assets are < $250,000 at close of plan year then 5500-EZ isn’t required

Question 75

What documents must the plan administrator file?

Answer 75

• summary plan description (SPD) — explains how plan works, available benefits, how to get benefits — must be provided to all participants — issued at least every 10 years • summary annual report (SAR) — summary of the annual report (F. 5500) — provided to participants annually • summary of material modification (SMM) — explains changes that occurred to SPD during the past year — issued as needed; summarizes only Major changes • individual accrued benefit statement — sent within 30 days of request

Question 76

What happens to the benefit with respect to participation in a DB plan for less than 10 years?

Answer 76

The maximum benefit permitted by law is reduced proportionately for each year of participation less than 10 years

Question 77

What are the ramifications regarding an integration level below the SSWB in DC plans re: constitutions, costs, etc?

Answer 77

In the Integration level in DC plans is below the SSWB (142,800) - larger contributions are made on behalf of EEs whos comp is > SSWB - the PLAN COST to the ER is INCREASED as INTEGRATION LEVEL is DECREASED - permitted disparity between max excess contribution % and base contribution % is reduced *optimum integration is generally just above the highest compensation of highest paid nonowner EE

Question 78

For what reasons would and why wouldn’t a government employer choose to establish a 457 plan?

Answer 78

Why would - income tax credit for certain TP’s regarding elective contributions - tax deferred growth - no EWP on distributions Why wouldn’t - tax deductibility of contributions • plan is sponsored by tax exempt entities, tax deductibility isn’t an issue

Question 79

When are the ADP test and ACP test required?

Answer 79

The ADP test is required when the plan provides - EE elective deferral contributions The ACP test is required when the plan provides - ER matching contributions; OR - EE AFTER TAX contributions

Question 80

What retirement plan(s) require PBGC insurance?

Answer 80

Traditional DB plans & Cash Balance Plans, generally

Question 81

Can you take a distribution from a SIMPLE w/o separating from service?

Answer 81

Yes

Question 82

What is the penalty for withdrawals from a SIMPLE within the first 2 years of participation?

Answer 82

25%

Question 83

What are some benefits/disadvantages of stock bonus plans and ESOPs?

Answer 83

Advantages - give EEs a stake in the company via stock ownership - tax deferral on stock appreciation - creates a market for ER stock - enhance cash flow due to ER’s making cashless contributions to plan Disadvantages - limit funds if ER stock sharply declines in value - creates an administrative and cash flow problem for ER’s by requiring them to offer a repurchase option (put option) if stock isn’t ready tradable on an established market

Question 84

Do DB plans have predictable costs?

Answer 84

No, they are determined annually by an actuary

Question 85

What are the 2 retirement plans that generally offer loan provisions?

Answer 85

401ks & 403bs

Question 86

What is the max permitted disparity limit for DB plans?

Answer 86

26.25%

Question 87

Do pension plans permit in service withdrawals?

Answer 87

No the 4 pension plans generally do not allow in service withdrawals (to participants under age 62)

Question 88

What plan requires a mandatory contribution to each employees account based off of a nondiscriminatory, specified % of each employees annual compensation?

Answer 88

A Money Purchase Pension Plan

Question 89

What are the contribution arraignments for cash balance plans and money purchase plans?

Answer 89

Cash Balance Plan - a DB plan Money Purchase Plan - a DC plan - mandatory contributions to each employees account, either a fixed % or flat $ - contribution is done based off a non discriminatory formula based off a specified % of each employees compensation - relatively SIMPLE to administer

Question 90

What are the contribution likits to 457 (non qualified) plans?

Answer 90

$19,500/y w/ +$6,500 catch up contributions for people 50+ Eligible plans allow double deferral limits to the extent of deferrals not taken within the final 3 years to retirement age - catch-ups not allowed during this period

Question 91

What are the differences between public, private, and ineligible 457’s?

Answer 91

Public - held by state/local govts - no SRF - $19,500 ($6,500) contributions - Roth contributions allowed - rollovers to other plans allowed - no 10% EWP Private - non church tax exempt organizations - SRF - $19,500 ($6,500) contributions + Roth’s - can only roll to other 457’s Ineligible plans (457(f)) - aka “Top Hats” - HCE & K-EE’s only - no contribution limits - no rollovers allowed

Question 92

Are distributions from 457 plans permitted and if so for what reasons?

Answer 92

No distributions allowed except for - attainment of age 72 - unforeseen emergency - separation from service * rmd rules apply In-service withdrawals are allowed

Question 93

Are Thrift Plan contributions, 401k elective deferrals, salary reduction contributions to existing SARSEPs, and ER contributions to SEP IRAs subject to FICA/FUTA tax?

Answer 93

Subject to FICA/FUTA - thrift plan contributions - 401k elective deferrals - salary reduction contributions to existing SARSEPs* NOT subject to FICA/FUTA - SEP IRAs *new SARSEPs cannot be established

Question 94

What are the characteristics of ESPP’s? Who can contribute? Can they discriminate? What are the w/d & stock ownership provisions?

Answer 94

ESPP’s are - nonqualified plans that CANNOT DISCRIMINATE (HCE’s cannot contribute to ESPP’s) - employee may recognize ordinary income at sale — OI on the basis on the lesser of FMV of stock at Grant date less option price, or FMV of stock on disposition date less option price - must exercise options within 3 months of separation of service - no EE can acquirethe right to buy more than $25,000 of stock per year @ grant — the $100k limit is for ISO’s

Question 95

What is someone provisional income and is it taxable?

Answer 95

Provisional income = MAGI + 1/2 SSB 50% or 85% taxable to the extent it exceeds certain thresholds

Question 96

When does survivor benefits terminate for caretaker parents?

Answer 96

When the dependent child turns 16 unless they are disabled

Question 97

When can you take a 55+ distribution from plans that allow it?

Answer 97

You must be 55 when you separate/get fired from the job

Question 98

When are children who are disabled prior to 22 no longer eligible for survivor benefits?

Answer 98

When the disabled child marries an able bodied person