a benefit formula that credits retirement benefits in a defined ben. plan according toa fixed % or dollar amount pr/yr of service or part
summary plan description (spd)
a detailed, reader friendly description of benefit plan provisions that must be provided to all plan participants and beneficiaries
common trust
a trustoften sponsored by a bank trust department or trust compnay that receives plan conrtributions, invests them, & pays out benefits when due.
catch-up provision
provision found in a both 403(b) & 457 plans that allows an eligible emploee to make higher annual contributions in the years just prior to retirement
vesting
process in which the percentage of a retirement plan benfit that a participant actually "owns" increases over time such as a benefit can be taken by a participant when he leaves the company
unfunded plan
plan uner which an employer promises to pay future benefits to 1 or more employee from teh employer's general assets. company promise is not secured or guranteed in any way
Tsa Plan
Tax-sheltered annutiy plan
top hat plan
a type of executive retirement plan that is unfunded & provides benefits toa select group of highly compenstated individuals
3-7 year graded vesting
an app. sched. in which vesting must occur at a rate of at least 20% per yr. beginning at teh complet;ion of 3 yr. of service the part, is fully vested at teh completion of 7 yrs of service.
tda plan
tax-defferred annuity plan
sep,
a pension plan established by a business on behalf of ties employees. contributions are deposited into the individuals retirement accounts. (irs's) of the employee
SERP (supploemental executive retirement plan)
employer paid nonqualified deferred compensation plan
section 457 plan
retirement plan that enables employees of state & local gov. & non-profit org. to defer taxation on salary-reduction contributions siilar to 401k but not to a qualified plan
section 403(b) plan
retirement plan that allows employees to defer comp. & defer taxes on both the comp. & its earnings aka tax sheltered annuity(tsa) employees can make additional contributions. only available to employees of public school & tax exempt organizations specified by IRS
section 401k plan
plan in which employee may chase to defer comp. on a before-tax basis & have those deferrals invested for retirement. could include employer matching & employer descretionary profit sharing contributions
simple (savings incentive match plan for employee)
employer sponsored retirement plan that can be either ira for each emloyee or part of 401k available if 100 or fewer employee earning at least 5k /yr & not participating in any other qualified plan
salry reduction plan
a plan that enables the employee to defer receipt & raxation of a portion of his current comp.
prohibited transaction
any direct or indirect dealing or transaction between a qualified plan or ira & a disqualified person or party in interest
keogh (hr 10 plan)
qualified retirement plan for self-emp. indivduals established through a sole prop. or partnershi (not for individual part) can be established either as defined contribution or defined benefical plans
funded plan
plan for shich cash or property is acutally set aside for the benefit of the employee
forward averaging
method of calculating taxes on a lump sum distribution that may result in a lower rate than would otherwise apply
five-year cliff vesting
an approved vesting schedule in which the participant is fully vested in his benefits @ completion of 5 yrs of service if they leave before 5 yrs they have no right to benefits of the plan
excess benefit plan
plan maintained by an employee soley to provide benefits for certain employees in excess of teh limitations on contributions & benefits imposed by irc section 415
partnership
unincorporated business w/2 or more owners
life annuity
a series of equal payments (typically monthly) made to recipient over this remaining lifetime
fiduciary
an individual or organization that has discretionary authority or control over a qualified plan trust, its assets or its administration or that for compenstion provides investment advice regarding plan assets
unfunded plan
plan under shich an employer promises to pay future benefits to one or more employees from the employers general assets. the company's promise not secured or guaranteed
trustee
party named in plan doc that has authority to hold(or invest) assets of plan for benefit of the participants. -has fiduciary reponsibility toward plan & its part
summary plan description (spd)
detailed, reader friendly description of benefit plan provisions that must be provided to all pan participants & benficaries
standardized plan
master or prototype plan that provides limited options to be selected by an employer. generally most of the plans terms are predetermined by the sponsoring organization
s-corp
a closley held corporate entity governed by a distinct & seperate set of tax rules & restirictions found in irc resulting in the cor being taxed liked a partnership
qualifed plans
a ret plan that meets req. of section 401(a) of irc & erisa act of 1974. they have unique tax advatntages for employers & plan participants
plan year
any 12 month period during which the plan chooses to keep its annual records. either the calendar yr. or fiscal year of plan sponsor
plan administrator
indiv. or organization charged w/ primary responsibility of carrying out the operationsl req. of the plan
defined contribution benefit plan
qualified retirement plan that usually provides of periodic contribuions specified in a sritten formula and an unspecified ret. benefit equal to teh value of the part. accnt balance at retirement.
defined benefit pension plan
a qualifed ret plan that provides a specified ret. benefit to participants
partnership
unincorporated bus. w/2 or more owners
participant- directed plan
def. contr. plan in which each participant is allowed to shoose how to invest the assets held in his accnt.
full retirement age
age at which full social security old-age benefits are available
normal retirement age
term in qualifed plan docs that may refer to an age that differs from the social security normal retirement age
nonqualified plans
a plan of deferred compensation that does not meet the qualifeid plan req. of irs or erisa. -- consists of an employer-employee agreement taht stipulates the conditions for employees receipt of future payments from salary, employee contribution or both.
nonelective emloyer contributions
contributions made by an employer on befalf of section 401(K) plan participants that are not related to the amount deferred by part. -they are not mathcing contributions
nonelective deferral
a plan contribution by the employer based on a percentage of participants compenstation not related to teh amunt deferred by the participant
nondeductible ira
individual ret. accnt in which contributions may not be a deducted from current taxable income
master plan
a ret. plan sponsered by a financial institution that an employer can adopt by simply executing a participation agreement. its plan docs. have already been examined & approved by IRS
lump sum distribution
distribution representing entire amount of a participants qualifed plan accnt balance.
life annutiy
series of equal payments (typically monthly) made to a recipient over his or her remaning lifetime
keogh (hr10) plan
qualified retirement plan for self-employed indiv. established through a sole prop. or partnership (if not designed for indiv. part) can be either defined contribution or defined benefit plans
indirect rollover
a transfer of cash or other prop. between qualified plans or ira's in which the owner takes temp rec of the funds. rollover is tax-free & w/o penatly if ompleted by teh 60th ay after distribution from ira or empl. plan
funded plan
a plan for which cash or property is actualy set aside for the benefit of the employee
employer contributions
elective defferals, nonelective contributions, & discretionary profit sharing contributions to a qualified plan
defined contribution plan
qualified ret. plan that provides an indiv. account for each participant & specivies teh annual contributions that each empl. recieves (benefits of each emp. are based upon the value of his accnt. at ret.
defined benefit plan
a qualifed ret. pan that defines what the benefit will be at retirement
deferred compensation
income that is not currenlty payable to an employee but that is payable in the future
annuity (qualified plans)
a series of equal periodic payments. the usual form of distribution used by defined benefit plans
annuity (insurance product)
a periodic payment in insurance terms, a form of policy or payout arrangement that provides a specified periodic cash payment to the annuitant
accured benefit method
method of calculating & funding defined benefit plan liabilities accuring in a particualr year. method looks at the plan's benefit accrural for the year for each participant at normal ret & funds the present value of teh benefit that year.
accured benefit
a benefit that ahs accumulated up to a particular point in the participants employment.
Annuity Due presumes that PMTs are made at the ________ of each period
Beginning
what does it mean to use a "level basis" to solve an equation
it means you do not use any inflation adjustments
Name two subcategories of qualified plans
Pension Plans
Profit sharting plans (Defined Contribution)
name the 4 types of pension plans
* pension plans are a subcategory of ________
defined benefit (DB)
cash balance (DB)
Money Purchase (DC)
Target Benefit (DC)
* _qualified plans____
name the 8 profit sharing plans (DC)
*profit sharing is a type of __________ plan
Profit sharing
thrift plan
stock bonus
ESOP (Lesop)
age weighted
cross-tested (comparability)
401(k) plan
simple 401(k)
* qualified
name the two subcategories of Nonqualified plans
Tax-advantaged
other nonqualified plans
Name the 6 types of Tax-advataged plans
*tax-advantaged is a type of _________ plan
Traditional IRA
roth ira
simple IRA
SEP
(SARSEP)
403(b) (TSA)
*nonqualified
Name the 5 types of other nonqualified plans
Section 457 plans
ISO
ESPP
NQSO
Deferred compensation plans
true of false: a employee can contribute before tax and after tax contributions to a Thrift plan.
False: an employee can only contribute after tax contributions to a thrift plan.
a big reason why they are often replaced with 401k plans.
True or false: an employer has the ability to change the amount allocated to a money purchase plan if the change is made before april 1st.
FALSE: an employer cannot change the contribution amount and must provide for definitely determinable benefits. april 1st was made up just to throw you off. lol
which qualified plan must provdie certain types of annuities as distribution options
1. money purchase
2. profit sharing
money purchase
true or false: money purchase plans can make distributions before retirement, if employee attains age 62
False, the only way to get that money out is to actually retire from the company, no hardship withdrawals either.
what is the biggest reason to use a target benefit plan
to capture a greater portion of the contribtuion for the older owners of the company
name the two types of discrimination tests used in qualified plans
ADP Actual deferral percentage
ACP Actual contribution percentage
explain the "matching approach" to section 401(K) (12)
must be equal to 100% of the elective contributions up to 3% of compensation, and 50% of the elective contributions between 3% and 5%. the rate of contributions for highly compensated employees cannot exceed the rate for non highly compensated employees.
TRu or false an empoyer can contribute up to 10% of the employees salary in a safe harbor plan
FALSE: an employer can only contribute a maximum of 6% of employee salary
what is the maximum an employee can cotribute in an automatic deferral requirement arrangment
10% in the Fifth
3% for the first year
4% during the second
5% during the third
6% druing the fouth
up to 10% on the fifth
true or false
a highly cmopensated employee who files jointly and has a modified adusted gross income in excess of the 191k phaseout cannot contribut to a Roth 401k
false, he cannot contribute to a roth ira but he can contribute to a roth 401k.
true or false: a roth only plan is a great way to attract highly compensated indivduals
false, there is no such thing as a roth only plan, you must have provide a way for employees to contribute pre tax money before you add a roth 401k option.
what is the pension benefit guaraty corporation (PBGC)
organization that protects defined benefit and cash balance plans. will pay a miminum benefit if the plan is unable to pay all benefits. financed through insurance premiums paid by companies
what orginizations are 403(b) plans available to.
public school systems and section 501(c)(3) tax exempt organizations.
403(b) plans are also known as
Tax sheltered annuities (TSAs)
true or false: a section 457 plan is a great plan for a church or synagogue
false: section 457 plans are unavailable for a church or synagogue or any organization that is controlled by church or synagogue
true of false: one of the main advantages of a section 457 plan is that the contributions do not count against the contribution limit on other types of plans ie. ira, 401k
True
part D medicare has a "donut hole" at what dollar amount does it begin and end?
begins at $2850 and ends at $4550.
name 4 strategies for filling gaps between actual costs and medicare coverage.
1. the purchase of so-called medigap insurance from private vendors
2. using medicare part c
3. if possible, maintaining coverage through an emplloyer-provided health insurance plan
4. for low-income seniors, qualifying for state assistance in paying some or all medicare costs (medicaid)
true or false: on of the disadvantages of Retiree Medical Accounts (RMA) is that the money available to the retiree is a "notional" amount and not an actual dollar amount
True: the retiree could potentialy lose the benefit if the corporation cannot pay because it is not actual dollar is a bank account.
for who was medicaid created for?
low income individuals with a primarty focus on Retirees
True of False: Medicaid is fully funded by the federal government
False: although medicaid is a federally initiated program, it is primarily administered and Partialy funded at the state level.
which medigap insurance should be purchased for medicare part c?
none, no medigap insurance is needed if medicare advantage plan is purchased. this may make a medicare advantage plan more cost effective.
