CEBS - RPA 1 - Module 2

Top-Heavy - Answer- DC: Sum of account balance of key employees greater than 60% of all account balances DB: PV of accumulated accrued benefits of key employees greater than 60% of all accumulated accrued benefits Distribution Rules - Answer- 60 days of later of: Plan year of termination Completion of 10 years of participation OR: attainment of age 65 or NRA Minimum Distribution Rules - Answer- 401(a)(9) of IRC April 1 of year following: year of termination or year employee turns 70 1/2 QJSA - Answer- Qualified Joint & Survivor Annuity Annuity for life of participant with survivor annuity for spouse 50-100% of benefit DC: annuity for life of surviving spouse not less than 50% of account balance with actuarial equivalent QPSA - Answer- Qualified Preretirement Survivor Annuity Provides survivor annuity for spouse not less than amount payable under QJSA Section 415 of IRC - Answer- Limits on Annual Additions and Benefits DC: total employer & employee contributions/year Smaller of 100% of employee's compensation and $54,000 DB: smaller of 100% of participant's high 3-year average compensation and $215,000/year Section 401(a)(17) of IRC - Answer- Limit on compensation for qualified plan. 2017: $270,000 2018: $275,000 Individual Limits - Answer- For tax-qualified status, plan must observe: Limit on employee's compensation and Limit on annual additions (DC) or Limit on benefits payable (DB) Other Vesting Requirements - Answer- Amounts <$5000 may be paid in LS at term Re-hire of payout can have prior service disregarded unless "buy back" Once vested, cannot forfeit Terms must be provided rights SS benefits cannot decrease termed benefit Reduction of benefit for early retirement Plan amendment cannot decrease vested percentage Plan amendment cannot decrease accrued benefit Vesting Requirements - Answer- DC: 100% after 3 years 20% after 2 years, increasing by 20% until 100% after 6 years DB: 100% after 5 years 20% after 3 years, increasing by 20% until 100% after 7 years SAR - Answer- Summary Annual Report Summary of Form 5500 Items that must be supplied upon request - Answer- Plan Documents Application for plan determination Complete copy of Form 5500 Personal benefits statement Plan termination report Items that must be automatically distributed - Answer- SPD SMM SAR Statement of benefits to terms Written explanation of claim denial Benefits statements every quarter (DC) Fee disclosures Form 5500 - Answer- Annual Financial Report Filed and displayed with DOL SMM - Answer- Summary of Material Modifications Summary of any plan amendment or change in information Included in SPD Average Benefit Percentage Test (ABP) - Answer- Employer determines annual contribution or accrual rate for each employee covered Rate divided by employee's compensation Percent averaged for both HCE and NHCE Pass: HCE>70%NHCE Computed for: contribution rate, annual benefit basis and accrued-to-date basis Nondiscriminatory Classification Test - Answer- Calculate NHCE concentration of objective test (NHCE/total employees) Determine if ratio percentage is in safe harbor or unsafe harbor Average Benefit Test - Answer- Must pass if fail ratio percentage test Two parts: Nondiscriminatory Classification Average Benefit Percentage Ratio Percentage Test - Answer- Calculate percent of HCE & NHCE: HCE benefiting/Total HCE NHCE benefiting/Total NHCE Pass: NHCE>70%HCE 410(b) of IRC - Answer- Coverage Tests Specific nondiscriminatory requirements for qualified plan Must meet one of two tests: Ratio percentage Average benefit Plan Permanency - Answer- Plan must be established to be permanent If determined not, could have adverse tax consequences Exclusive Benefit - Answer- Funds contributed must be used for benefit of employees or benes Limited exceptions: Plan termination & actuarial error Excess funds returned to employer Denial of IRS approval Mistake Contribution for deduction