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7 Cards in this Set

  • Front
  • Back
Restrictions on Distributions

In any year, payments to a restricted employee
- cannot exceed the payments that would be made under a life annuity that is the actuarial equivalent of the of the accrued benefit of the restricted employee (plus any social security supplement)
Restrictions on Distributions

An HCE who is one of the 25 highest paid non-excludable employees (in any year, past or present)
- is considered a restricted employee. The employer can increase 25 to a higher number. This "high 25" list is re-determined each year.

1) To determine the high 25, each HCE (and former HCE) is associated with the salary from the year in which they were paid the highest salary. The HCEs with the top 25 highest salaried are considered to be restricted employees for the year
Restrictions on Distributions

There is no restrictions if any of the following apply:
1) The market value of assets is at least 110% of RPA '94 current liability following distribution to the restricted employee.

2) The present value of the distribution to the restricted employee is less than 1% of the RPA '94 current liability before the distribution.

3) The present value of the distribution is no greater than $5,000
Restrictions on Distributions

Any reasonable and consistent method may be used to determine the current liability (the interest rate used in the valuation is not required to be used, for example).
Note that there are currently no regulations under PPA clarifying how current liability is to be determined for a single employer plan (for example, should it really be the funding target?).
Restrictions on Distributions

Under Revenue Ruling 92-76, a restricted benefit can be paid if
- the participant provides security (in the form of an escrow account) to the plan that is equal to at least 125% of the amount of the restricted benefit
Restrictions on Distributions

A participant who was previously restricted but is no longer restricted may received their remaining benefit
- without restriction, beginning with the year in which they are no longer restricted. There are two ways that a previously restricted participant can be paid benefits without restriction.

- The employee is no longer in the top 25 paid group
- The plan becomes well funded (the market value of assets after distribution is now at least 110% of current liability)
Restrictions on Distributions

In the event of plan termination
- the plan must provide that the benefit payable to an HCE is nondiscriminatory