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42 Cards in this Set
- Front
- Back
- 3rd side (hint)
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SEP vesting |
Immediate 100% vested |
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SEP plan contributions |
The lesser of:
25% of ees compensation (Limited to compensation amount of 265k)
$53,000 |
Lesser of 2 options |
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SEP top heavy rules |
If plan is top heavy (60% test) ER must make a min contrib. of 3% of the EEs compensation for each non-key EE plan participant |
Min contrib for non key EEs |
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SEP disadvantages |
Not enough for retirement alone
Employee bears risk
Contributions to a SEP plan reduce allowed contributions to a qualified plan (401k)
Special rule for calculating deductible contributions on behalf of an owner employee also applies to a SEP |
4 disadvantages |
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MAGI limits for active participants for IRA deds |
Single 61k-71k MFJ 98k-118k MFS 0-10k |
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IRA distributions are made in what order? |
Contributions, conversions, earnings |
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Advantages of a SIMPLE |
Not subject to nondiscrimination and top heavy rules
ERs contributions are deductible if made by the due date of ERs tax return including extensions.
Adv for EE: Elective deferrals and ER contributions are 100% vested. |
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SIMPLE disadvantages |
Can't be rolled over into another plan, other than a simple, within 2 yrs of initial participation.
After tax contributions not allowed |
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Eligibility for SIMPLEs |
100 or less EEs who earned at least 5k in the preceding yr.
Doesn't maintain another SEP, SARSEP or 403b. Yet 457 ok bc it's a non qualified plan.
Self employed ok as long as you meet the 5k min |
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How to form a SIMPLE IRA |
Easy to adopt by using form 5304-simple or 5305-simple
Less expensive to administer than a qualified plan |
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Union exception for SIMPLE |
If Union has agreement to have a qualified plan or SEP, ER may establish a SIMPLE plan for other EEs, excluding those covered under the union plan.
Must be made effective 1/1 of any year contributions are made, unless it's the year of adoption, then effective date can be anywhere bet January 1 and October 1. |
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SIMPLE contributions |
EEs 12,500 (2016) 3,000 (2016) catch up at 50
ERs One of the 2 formulas :
ER match Up to 3% of EE compensation (ER can match as little as 1% in no more than 2 out of 5 yrs)
2% of compensation non elective contribution for each EE |
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Disadvantages of SIMPLE IRAs vs simple 401(k) |
25% early withdrawal penalty if distributions made during the first 2 years of plan participation.
Can't purchase life insurance as a funding vehicle since an IRA
Participant loans unavailable
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ACP test |
Actual contribution percentage
Applies to ER matching and EE after tax contributions
If employer doesn't match elective deferrals (pretax) or doesn't allow after tax contributions (simple) only the ADP test must be satisfied
If ACP for nonHCE/Max ACP HCE
<=2% 2 x ACP of nonHCE >2% but <=8% 2%+ACP of NHC >8%. 1.25x ACP of NHC |
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Rules on loans for qualified plans |
Must pay back within 5 years, unless for a primary residence
Limit is 50% of vested account balance up to a max of 50k.
Up to 10k may be borrowed even if it is greater than one half the participants vested balance
The participants loan must be reduced by any loan balance in the one year preceding the loan. |
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Name 2 defined benefit plans |
Traditional db pension plan
Cash balance pension plan |
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Name 2 defined contribution pension plans |
Money purchase
Target benefit |
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Samples of profit sharing plans |
Traditional Age based ps plan Stock bonus/esop 401k Simple 401k New comparability Thrift plan |
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Tax advantage plans |
SEP/SARSEP IRA/Roth IRA/SIMPLE IRA 403(b) |
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Non qualified retirement plans |
Section 457 Deferred compensation plan |
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Define HCE |
Highly compensated employee
Greater than 5% owner any time during the current or preceding year
For preceding year had compensation greater than 120k (2016) |
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What is a HCE election |
If ER makes election HCEs would be
Only persons in the top 20% of compensation AND earning greater than 120k
Does NOT exclude 5% owners even if they're NOT making 120k
Usually for large ERs and helps them pass ADP test (actual deferral percentage) |
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Percentage test |
Employers of the qualified plan must cover at least 70% of their non HCEs
Covered meaning they're eligible not necessarily participating.
If plans don't meet % test they must satisfy either
Ratio test OR Average benefits % test |
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Ratio test |
Non HCEs covered by plan must be at least 70% of the % of HCEs
Ratio test=
%of nHCEs covered ----------------------------- >=70% % of HCEs covered |
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Average benefits test |
Average benefits accrued for non HCEs as s group must be >= 70% of average benefits % accrued for HCEs
Avg benefits % test=
Avg benefits % nonHCEs -------------—------------------- >=70% Avg benefits % HCEs |
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What is the 50/40 test |
For db pension plans
In addition to meeting the percentage tests (or ratio or avg) must meet 50/40 test
All defined benefit pension plans must benefit no fewer than the lesser of:
50 employees OR 40% of all eligible EEs
Example: only 5 EEs, at least 2 EEs must be covered |
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Limitation on dbp plan for benefits paid at retirement |
Can't exceed the lesser of:
210,000 annually (2016)
100% of EE compensation averaged over top 3 consecutive years (limited to 265k per year) |
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Annual additions limit |
For dcps, plan contributions can't exceed lesser of
53,000 (2016)
100% of EE annual compensation
Annual additions include ER contributions EE contributions Forfeitures allocated to plan
Excludes catch up contribs!
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Dbp pension plan vesting requirements -top heavy vs non top heavy |
Top heavy Same as dcp which is 3 yr cliff or 2-6 yr graded (20% every yr starting at 2 yrs)
Non top heavy 5 yr cliff (100% at 5 yrs) or 3-7 yrs graded (20% every year starting at 3 yrs) |
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Dcp vesting requirements |
3 yr cliff or 2-6 yr graded vesting (20% every yr starting at 2 yrs) |
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Key employee |
Officer with compensation more than 170k
Greater than 5% owner OR Greater than 1% owner and greater than 150k compenstn.
No more than 50 employees can be officers If co fewer than 50 EEs, the greater of 3 or 10% of EEs |
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What is top heavy |
A dbp that provides more than 60% if it's aggregate benefits to key EEs |
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2 consequences if dbp is top heavy |
Must provide 3 yr cliff or 2-6 yr graded vesting. (Similar to dcp)
Must provide a min benefit accrual of 2% times number of years of service up to 20% for all non key EEs |
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Consequence of dcp being top heavy |
Vesting is fine at 3 yr cliff or 2-6 graded
ER must make a min contribution of at least 3% of annual compensation to each non key EE
If contribution to key EEs is less than 3% contribution to non key EEs can be equal to key EE contribution |
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Max permitted for social security integration of dbp |
3/4ths of 1% times the EEs yrs of service, up to 35 years
Therefore max % difference is 26.25% |
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Max allowable under social security permitted disparity for dcps |
The lesser of
2 times the base % OR Base % + 5.7%
Only excess method is used, not offset method
Plans prohibited from integration: ESOP, SARSEP, and simple Plus EE elective deferrals and ER matching contributions |
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Max paid benefit under a dbp |
Under IRC section 415, The lesser of the 2
210,000 OR 100% of compensation averaged over the 3 highest consecutive yrs of earnings |
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Max monthly benefit guaranteed by PBGC |
5,011/month 60,132/yr
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DB(k) plans |
Hybrid plan that allows a dbp to accept 401(k) EE contributions.
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DB (k) plan eligibility |
No more than 500 EEs
The 401(k) component must include auto enrollment feature and fully vested 50% match on the 1st 4% of compensation deferred by an EE |
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DB(k) EE advantages |
Guaranteed monthly income at retirement
Combines security EEs get with dbp plans with individual investment control
Encourages EEs to save more with the auto enrollment
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DB(k) ER advantages |
Exemption from top heavy rules
Small ERs can sponsor a dbp with more predictable costs
Specifications and db formula are defined
Offers simpler admin and lower costs vs having 2 sep plans
Requires only one plan doc, one trust, one form 5500 filing, one summary plan description |
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