QKA - 1 RETIREMENT PLAN FUNDAMENTALS
Goals in setting up a Retirement plan for the Employer include:
1)
2)
3) - Answer -1) Helps to retain and attract employees
2) Reward long term employment
3) Ensure employer is saving for retirement.
What is a defined benefit plan?
- A defined contribution plan maintains an - Answer -individual account balance for
each participant.
What is a defined benefit plan?
- A participant's benefit is based solely - Answer -on the value of the account balance.
What is a defined benefit plan?
- The account will reflect - Answer -contributions, forfeitures, and investment earnings
allocated to the account.
What is a defined benefit plan?
- Because the size of a participant's benefit at retirement depends in part on
__________________________________________________ and
____________________________________________________ - Answer -the
participant is considered to bear the risk of investment.
amount of investment returns experienced by the participant's account,
What is a defined benefit plan?
- Because of the direct link between investment returns and the ultimate benefit enjoyed
by the participant, many defined contribution plans permit participants to - Answer -
direct the investments for their own accounts.
401(k) Plans
- A 401(k) plan is a - Answer -profit-sharing plan or stock bonus plan that allows for
employee elective deferrals.
401(k) Plans
- A 401(k) plan allows employees to ___________________________. The tax code
section that allows this is ________________ thus the name. - Answer -defer some of
their compensation to a retirement plan
Section 401(k),
401(k) Plans
, - Any employer can adopt a 401(k) plan except for - Answer -state and local
government employers.
The two rules to consider for 401(k) plans are:
1)
2) - Answer -1) Top heavy rules
2) Non-discrimination rules
Top heavy rules
1)
2) - Answer -a. These rules require an employer contribution to a plan where most of
the benefits go to the owners and other key employees.
b. In a 401(k) plan with only elective deferrals, if the owners defer significantly more
than their employees as a whole, then the employer may be required to make a
contribution.
Non-discrimination rules
1) - Answer -a. These rules measure how much the employees of a company benefit
fromm the plan compared to the owners and other highly paid employees. If the
employees choose not to defer or they defer at a low rate, it can limit the amount that
you are able to defer.
Because of these two rules (top heavy and non-discrimination, it is uncommon for -
Answer -a small company to have a deferral only 401(k) plan.
Defined Contribution Plans
-
-
- - Answer -- Money Purchase Plans > ESOPs
- Profit Sharing and 401(k) plans
- Stock Bonus Plans > ESOPs
Money purchase plans are less popular because they:
1)
2)
3) - Answer -1) Have mandatory employer contribution
2) Have more restrictive distribution rules than 401(k) plans.
3) Cannot permit elective deferrals
Money Purchase Plan Requirements:
1) Required to have a ____________________ for determining the company's annual
contribution to the plan
2) May permit distribution only upon
______________________________________________________________________
___________
Goals in setting up a Retirement plan for the Employer include:
1)
2)
3) - Answer -1) Helps to retain and attract employees
2) Reward long term employment
3) Ensure employer is saving for retirement.
What is a defined benefit plan?
- A defined contribution plan maintains an - Answer -individual account balance for
each participant.
What is a defined benefit plan?
- A participant's benefit is based solely - Answer -on the value of the account balance.
What is a defined benefit plan?
- The account will reflect - Answer -contributions, forfeitures, and investment earnings
allocated to the account.
What is a defined benefit plan?
- Because the size of a participant's benefit at retirement depends in part on
__________________________________________________ and
____________________________________________________ - Answer -the
participant is considered to bear the risk of investment.
amount of investment returns experienced by the participant's account,
What is a defined benefit plan?
- Because of the direct link between investment returns and the ultimate benefit enjoyed
by the participant, many defined contribution plans permit participants to - Answer -
direct the investments for their own accounts.
401(k) Plans
- A 401(k) plan is a - Answer -profit-sharing plan or stock bonus plan that allows for
employee elective deferrals.
401(k) Plans
- A 401(k) plan allows employees to ___________________________. The tax code
section that allows this is ________________ thus the name. - Answer -defer some of
their compensation to a retirement plan
Section 401(k),
401(k) Plans
, - Any employer can adopt a 401(k) plan except for - Answer -state and local
government employers.
The two rules to consider for 401(k) plans are:
1)
2) - Answer -1) Top heavy rules
2) Non-discrimination rules
Top heavy rules
1)
2) - Answer -a. These rules require an employer contribution to a plan where most of
the benefits go to the owners and other key employees.
b. In a 401(k) plan with only elective deferrals, if the owners defer significantly more
than their employees as a whole, then the employer may be required to make a
contribution.
Non-discrimination rules
1) - Answer -a. These rules measure how much the employees of a company benefit
fromm the plan compared to the owners and other highly paid employees. If the
employees choose not to defer or they defer at a low rate, it can limit the amount that
you are able to defer.
Because of these two rules (top heavy and non-discrimination, it is uncommon for -
Answer -a small company to have a deferral only 401(k) plan.
Defined Contribution Plans
-
-
- - Answer -- Money Purchase Plans > ESOPs
- Profit Sharing and 401(k) plans
- Stock Bonus Plans > ESOPs
Money purchase plans are less popular because they:
1)
2)
3) - Answer -1) Have mandatory employer contribution
2) Have more restrictive distribution rules than 401(k) plans.
3) Cannot permit elective deferrals
Money Purchase Plan Requirements:
1) Required to have a ____________________ for determining the company's annual
contribution to the plan
2) May permit distribution only upon
______________________________________________________________________
___________
