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48 Cards in this Set
- Front
- Back
QUALIFIED PLANS
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meet IRS, DOL, ERISA reqs
company can report it as an expense, indiv doesn't have to report company contribution as income creditors cannot touch tax deferred growth loans permitted |
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CLASSIFICATIONS OF QUALIFIED PLANS
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Pension or Profit sharing
Defined benefit or Defined contribution Contributory or Noncontributory Corporate or Keogh |
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CHARACTERISTICS OF A PENSION PLAN
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mandatory funding
no in-sevice w/drawals alllowed other than hardship loans allowed limited to no more than 10% of investment in company stock |
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CHARACTERISTICS OF A PROFIT SHARING PLAN
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contributions not mandatory, need to be "substantial and recurring"
in-service withdrawals allowed tend to be portable no promised retirement benefit |
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TYPES OF PENSION PLANS
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Defined Benefit
Cash Balance Money Purchase Target Benefit |
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Types of Profit Sharing Plans
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Profit Sharing Plans
Stock Bonus Plans ESOPS LESOPS 401(k) Plans Thrift Plans SIMPLE (401(k)) |
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CHARACTERISTICS OF A DEFINED BENEFIT PLAN
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specifies the actuarially determined benefit received at retirement
favored by older employees |
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CHARACTERISTICS OF A DEFINED CONTRIBUTION PLAN
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defines the annual employer current contribution
benefit received by an employee depends on account balance at retirement favors younger employees |
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TYPES OF DEFINED BENEFIT PLANS
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Defined Benefit
Cash Balance |
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TYPES OF DEFINED CONTRIBUTION PLANS
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Money Purchase
Target Benefit Profit Sharing Plans Stock Bonus Plans ESOPs LESOPs 401(k) Plans Thrift Plans SIMPLE (401(k)) |
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CHARACTERISTICS OF A CONTRIBUTORY PLAN
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employee makes some contribution
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CHARACTERISTICS OF A NONCONTRIBUTORY PLAN
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employer makes all of the contribution
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TYPES OF CONTRIBUTORY PLANS
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401(k)
Thrift Plan |
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TYPES OF NONCONTRIBUTORY PLAN
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most pension and profit sharing plans
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CHARACTERISTICS OF A CORPORATE SPONSORED PLAN
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for regular C corps or S corps
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CHARACTERISTICS OF A KEOGH PLAN (HR 10)
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qualified plan for unincorporated businesses
self employed, schedule C partnerships, LLCs filing as partnerships |
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Characteristics of Qualified Plans:
EMPLOYER CONTRIBUTIONS |
not subject to federal income tax for eE
not subject to FICA tax deductible to employer |
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Characteristics of Qualified Plans:
EMPLOYEE CONTRIUBTIONS |
not subject to federal income tax
subject to FICA |
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Characteristics of Qualified Plans:
SPECIAL INCOME TAX AVERAGING |
if born before 1-1-1936, 10 year averaging
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Characteristics of Qualified Plans:
NET UNREALIZED APPRECIATION |
for lump sum distriubutions of employer stock (have to pay tax when sold)
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Characteristics of Qualified Plans:
TIMING OF INCOME TAX DEDUCTION |
taxed only when withdrawn
can be rolled over to IRAs |
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ABCs of qualified pension plans:
A: AGREEMENT |
provisions of the plan must be set forth in a written agreement
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ABCs of qualified pension plans:
B: BENEFITS |
must be definitely determinable
defined benefit or defined contribution benefits protected if the pension plan merged, consolidate, or transferred |
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ABCs of qualified pension plans:
COMMUNICATION |
Plan provisions must be communicated to the eEs
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ABCs of qualified pension plans:
D: DISCRIMINATION |
w/respect to coverage, contributions, benefits
favorable treatment of highly compensated executives prohibited |
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ABCs of qualified pension plans:
E: Exclusive |
plan must be for the exclusive benefit of the eEs and their Bs
eR prohibited from tapping or recapturing the pension plan dollars |
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ABCs of qualified pension plans:
F: FUNDING |
must be on a regular annual basis
terminal funding of benefits not permitted only if benefits are over-funded may eR reduce contributions |
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DISADVANTAGES OF QUALIFIED RETIREMENT PLANS
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costs to qualify, fund, and administer plan
highly regulated disclosure reqs annual testing |
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Qualified Plan Elements:
PLAN DOCUMENT |
includes terms and benefit amounts
once adopted, becomes separate legal entity |
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Qualified Plan Elements:
TRUST |
holds the plan assets
trustee usually and outside pary adminster is usually the employer |
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Qualified Plan Elements:
FUNDS |
usu cannot be returned to employer
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Qualified Plan:
ELIGIBILITY |
21 and 1 rule:
Cannot require more than 1 year of service eEs over 21 must be allowed to enter upon meeting waiting period req Alternate to 21 and 1 rule: Waiting period can be 2 years IF immediate 100% vesting |
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Qualified Plan:
CAN BE EXCLUDED FROM ELIGIBILITY: |
eEs who didn't meet the 21 and 1 rule
eEs covered by collective bargaining agreement if retirement benefits are subject to good faith bargaining eEs terminated w/less than 500 hours AND are not employed on last day of plan year Nonresident aliens |
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Qualified Plan:
PLAN ENTRANCE DATES |
once eE has met eligibility reqs, must enter plan on next available entrance date (monthly, quarterly, semiannually, etc.)
cannot make eE wait more than 6 months |
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Qualified Plan:
Definition of HIGHLY COMPENSATED |
>5% owner OR $90,000 compensation
Alternative: eR may elect to limit the HCE to top 20% ranked by preceding year's compensation |
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Qualified Plan:
Definition of KEY EMPLOYEE |
[>5% owner] OR
[>1% owner AND $150 K] OR [was an officer AND $130 K] |
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Qualified Plan:
COVERAGE REQUIREMENTS |
Safe Harbor:
Cover 70% of eligible non-highly compensated eEs Exceptions to Safe Harbor: Ratio Percentage Test Average Benefits Percentage Test |
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Qualified Plan:
Coverage Requirements: RATIO PERCENTAGE TEST |
% of NonHCE covered must equal at least 70% of % of HCE covered.
(% NonHCE covered)/(% HCE covered)>_70% Ex: 90% of HCE covered, then 70%x90%=63% of NonHCE must be covered |
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Qualified Plans:
Coverage Requirements: AVERAGE BENEFIT TEST |
Non-discriminatory component:
Classification reasonable and based on objective business criteria Ratio % of plan can either be - >_70% OR - be non-discriminatory based on facts and circumstances Average Benefit % Test: Average benefits % accrued for NonHCE must be greater than 70% of average benefit percent for HCE. (Avg Ben % NonHCE)/(Avg Ben % HCE)>_70% |
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Qualified Plans:
Coverage Requirements: MINIMUM PARTICIPATION |
Defined Benefit Plans must benefit at least the lesser of:
[50 employees] OR G:[40% of all the company's ERISA eligible eEs : 2 eEs (or 1 if there is only 1] |
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Qualified Plans:
VESTING |
eE contributions:
always fully and immediately vested eR contributions: Non Top Heavy: - 5 year cliff OR - 3-7 graded Top Heavy: - 3 year cliff OR - 2-6 graded |
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Qualified Plans:
Vesting: TOP HEAVY PLANS |
> 60% of aggregrate accrued benefits go to key employees
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Qualified Plans:
Vesting: DEFINED BENEFIT PLANS |
typically require certain min service such as 10 or 15 yrs to obtain full % benefit
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Qualified Plans:
TAX EFFECT ON DISTRIBUTIONS |
Pre-tax contributions:
contributions and earnings treated as ordinary income After tax contributions: contributions are return of capital earnings are ordinary income |
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Qualified Plans:
415 LIMITS DEFINED BENEFIT |
Limit for eE:
L:[100% of compensation : $165 K] Limit for eR: Amt necessary to fund the promised benefit. Benefit limited to L:[100% of compensation : $165,000] |
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Qualified Plans:
415 LIMIT DEFINED CONTRIBUTION |
eE Limit:
L:[100% compensation : $40 K] eR Limit: 25% of all particpant's compensation |
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Qualified Plans:
TIMING OF ANNUAL CONTRIBUTIONS |
Defined benefit:
8.5 months after end of plan year Defined contribution: 2.5 months (subject to 6 month extension) after end of plan year Profit Sharing: Recurring and substantial |
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Qualified Plans:
FIDUCIARY RULES |
* funds must be deposited in an irrevocable trust
* plan trustee subject to stringent federal fiduciary rules requiring them to manage the fund solely in the interest of plan participants and beneficiaries * cannot allow more than 10% to be invested in eR securities * obligation to diversify assets * prevent related party dealings |