Term
|
Definition
| The 1.25 test is satisfied if the ADP of the HCE group does not exceed 1.25 times the ADP of the NHCE group. For example, if the ADP of the NHCE group is 4 percent, the ADP of the ADP of the HCE group would be limited to 1.25 x 4% or 5%. |
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Term
|
Definition
| The actual deferral percentage (ADP) test is the exclusive means of showing that the 401(k) arrangement satisfies the nondiscriminatino requirements of IRC 401(a)(4) |
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Term
|
Definition
| Actual contribution ratio |
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Term
|
Definition
|
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Term
|
Definition
| Normally a particiapnt is benefiting under a defined contribution plan only if he or she received an allocation of employer contributions or forfeitures. In a 401(k) plan, the participant is benefiting if he or she is an eligible employee under the 401(k) plan. |
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Term
| Current year testing method |
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Definition
| The alternative testing method to the prior year testing method is the current year testing method. Under the current year testing method, the ADP limit and ACP limit for the HCEs is determined with reference to NHCE data forthe same plan year. |
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Term
|
Definition
| When a plan has more than one set of eligibility requirements that apply to employees covered by the plan, the plan has dual eligibility provisions. To determine excludable employees under that type of plan, the exclusion for employess who fail the satisfy the plan's age/service requirments applies to the lowest age/service requirments applicable to ANY employee benefiting under the plan for the plan year. |
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Term
|
Definition
| A plan may include compensation earned for a year that is paid within the first few weeks of the next year (the first few weeks rule), so long as all similarly situated employees are treated uniformaly and compensation is not counted in more than one year. |
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Term
|
Definition
| The five-year rule is the general rule that an amendment to change from the current year testing method to the prior year testing method is permitted only if the plan used the current year testing method for each of the five preceding plan years (i.e., the five plan years preceding the plan year in which the change to the prior year testing method takes effect). |
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Term
|
Definition
| The IRS refers to employees who are eligible to make pre-participation rollovers as limited participants because their participation rights in the plan are limited to the right to make rollovers until they satisfy the plan's eligibility conditions. The IRS makes it clear that a limited participant is not considered an eligible employee under a 401(k) plan merely because he or she is eligible to make a rollover contribution. Until the employee actually satisfies the eligibility requirements to participate in the 401(k) arrangement, he or she is not considered an eligible employee for ADP purposes. |
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Term
|
Definition
| The employer is required to disaggregate the 401(k) arrrangement and the 401(m) arrangment to test coverage. This is often refferred to as mandatory disaggregation and means that each disaggregated portion of the plan is treated as if it were a sperate plan for purposes of testing coverage. |
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Term
| Otherwise excluded employees |
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Definition
| When determining the coverage testing group, the employees who have not satisfied the plan's age and service requirements are excluded. If the plan's age and service requirements are more LIBERAL than the STATITORY requirements of age 21 or one year of service, the plan is covering employees it otherwise could exclude from the coverage testing group. For example, a plan with a six-month eligibility condition is covering employees that would have been excluded under a one year of service condition. These employess are known as otherwise ecsludeable employees. |
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Term
| Prior year testing method |
|
Definition
| The default testing method under the statute is the prior year testing method. Under the prior year testing method, the ADP limit and the ACP limit for the HCEs is determined with reference the NHCE data from the prior plan year. The regulation referr to the plan year from which NHCE data is taken as the application year. |
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Term
|
Definition
| Under a special testing rule, the employer may disaggregate the portion of the plan covering the otherwise excludable employees from the rest of the employees (the statutory employees) |
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Term
|
Definition
| The test is satisfied if the ADP of the HCE group is BOTH (a) not more than two percentage points greater than the ADP of the NHCE group, and (b) not more than twice the ADP of the NHCE group. In other words, to arrive at the limite for the HCE group, add 2 percent to the NHCE group's perentage or double that pcercentage, which ever produces the smaller result. |
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Term
|
Definition
| the net gains or losses for the plan year that are attributed to the excess contributions or excess aggregate contributions |
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Term
|
Definition
| "The earnings on the excess contributions are equal to the earnings for the plan year attributable to elective deferrals, multiplied by the following fraction:" |
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Term
| Excess aggregate contribution |
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Definition
| Matching contributions or after-tax employer contributions made on behalf of HCEs that cause the plan to fail the ACP test |
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Term
|
Definition
| Elective deferrals made on behalf of one or more HCEs that cause the plan to fail ADP testing |
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Term
|
Definition
| Begins on the first day of the plan year after the plan year being tested and ends on the date of the date of distribution of the excess contributions or excess aggregate contributions |
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Term
|
Definition
| A two-step process to determine the amount to be distributed to each HCE who is an eligible employee for the plan year in which the ADP failure occurred |
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Term
|
Definition
| The participant who is in the middle of the group |
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Term
| Qualified matching contribution (QMAC) |
|
Definition
| Matching contributions that satisfy vesting & requirements. Must be 100% vested. Not eligible for hardship withdrawals |
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Term
| Qualified nonelective contribution (QNEC) |
|
Definition
| "Contributions made by the employer that satisfy vesting, distribution & nondiscrimination requirements. Must be 100% vested. Note eligible for hardship withdrawals" |
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Term
| Representative contribution rate |
|
Definition
| "The greater of: 1. The lowest NHCE contribution rate, taking into account a sampling of eligible NHCEs that equals at least half of the total eligible NHCEs or 2. The lowest NHCE contribution rate of any eligible NHCE who is employed by the employer as of the last day of the plan year" |
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Term
|
Definition
| "The earnings for the gap period are deemed to be equal to 10 percent of the earnings for the plan year attributable to the excess contributions or excess aggregate contributions, as determined under any acceptable method described above, multiplied by the number of months in the gap period" |
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Term
|
Definition
| "Disproportionate QNEC's, as defined by the regulation, are disregarded for testing purposes" |
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Term
|
Definition
| The 1.25 test is satisfied if the ADP of the HCE group does not exceed 1.25 times the ADP of the NHCE group. For example, if the ADP of the NHCE group is 4 percent, the ADP of the ADP of the HCE group would be limited to 1.25 x 4% or 5%. |
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|
Term
|
Definition
| The actual deferral percentage (ADP) test is the exclusive means of showing that the 401(k) arrangement satisfies the nondiscriminatino requirements of IRC 401(a)(4) |
|
|
Term
|
Definition
| Actual contribution ratio |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Normally a particiapnt is benefiting under a defined contribution plan only if he or she received an allocation of employer contributions or forfeitures. In a 401(k) plan, the participant is benefiting if he or she is an eligible employee under the 401(k) plan. |
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|
Term
| Current year testing method |
|
Definition
| The alternative testing method to the prior year testing method is the current year testing method. Under the current year testing method, the ADP limit and ACP limit for the HCEs is determined with reference to NHCE data forthe same plan year. |
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|
Term
|
Definition
| When a plan has more than one set of eligibility requirements that apply to employees covered by the plan, the plan has dual eligibility provisions. To determine excludable employees under that type of plan, the exclusion for employess who fail the satisfy the plan's age/service requirments applies to the lowest age/service requirments applicable to ANY employee benefiting under the plan for the plan year. |
|
|
Term
|
Definition
| A plan may include compensation earned for a year that is paid within the first few weeks of the next year (the first few weeks rule), so long as all similarly situated employees are treated uniformaly and compensation is not counted in more than one year. |
|
|
Term
|
Definition
| The five-year rule is the general rule that an amendment to change from the current year testing method to the prior year testing method is permitted only if the plan used the current year testing method for each of the five preceding plan years (i.e., the five plan years preceding the plan year in which the change to the prior year testing method takes effect). |
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|
Term
|
Definition
| The IRS refers to employees who are eligible to make pre-participation rollovers as limited participants because their participation rights in the plan are limited to the right to make rollovers until they satisfy the plan's eligibility conditions. The IRS makes it clear that a limited participant is not considered an eligible employee under a 401(k) plan merely because he or she is eligible to make a rollover contribution. Until the employee actually satisfies the eligibility requirements to participate in the 401(k) arrangement, he or she is not considered an eligible employee for ADP purposes. |
|
|
Term
|
Definition
| The employer is required to disaggregate the 401(k) arrrangement and the 401(m) arrangment to test coverage. This is often refferred to as mandatory disaggregation and means that each disaggregated portion of the plan is treated as if it were a sperate plan for purposes of testing coverage. |
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|
Term
| Otherwise excluded employees |
|
Definition
| When determining the coverage testing group, the employees who have not satisfied the plan's age and service requirements are excluded. If the plan's age and service requirements are more LIBERAL than the STATITORY requirements of age 21 or one year of service, the plan is covering employees it otherwise could exclude from the coverage testing group. For example, a plan with a six-month eligibility condition is covering employees that would have been excluded under a one year of service condition. These employess are known as otherwise ecsludeable employees. |
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|
Term
| Prior year testing method |
|
Definition
| The default testing method under the statute is the prior year testing method. Under the prior year testing method, the ADP limit and the ACP limit for the HCEs is determined with reference the NHCE data from the prior plan year. The regulation referr to the plan year from which NHCE data is taken as the application year. |
|
|
Term
|
Definition
| Under a special testing rule, the employer may disaggregate the portion of the plan covering the otherwise excludable employees from the rest of the employees (the statutory employees) |
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|
Term
|
Definition
| The test is satisfied if the ADP of the HCE group is BOTH (a) not more than two percentage points greater than the ADP of the NHCE group, and (b) not more than twice the ADP of the NHCE group. In other words, to arrive at the limite for the HCE group, add 2 percent to the NHCE group's perentage or double that pcercentage, which ever produces the smaller result. |
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|
Term
|
Definition
| "For a new plan, there is no prior year data for the NHCE group. Therefore, the IRC provides that the NHCE group's ADP is deemed to be 3 percent under the prior year testing method, unless the plan provides that it will determine the prior year ADP on the basis of the actual NHCE data for the first plan year. If the actual NHCE is used for the first plan year under a plan the uses the prior year testing method, then that data will be used twice for testing purposes: once for the ADP test run for the first plan year, and again for the ADP test run for the next plan year. " |
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Term
| Disaggregated plans testing method |
|
Definition
| "If the disaggregated plans testing method option is used for ADP or ACP testing, statutory employees and otherwise excludable employees are completely disaggregated, as if each group participates in a separate plan: one covering the otherwise excludable employees, and the other covering the statutory employees. A separate ADP and , if applicable, a separate ACP test, is performed for each disaggregated plan. " |
|
|
Term
|
Definition
| "As a general rule, a 401(k) arrangement within a plan is treated as a single 401(k) arrangement, subject to a single ADP test (unless a testing exception, such as the safe harbor rule under IRC 401(k)(12), applies). However, sometimes the 401(k) arrangement has to be divided up (known as disaggregation) as if it consisted of two or more separate 401(k) arrangements. When that happens, the disaggregated 401(k) arrangements apply the nondiscrimination testing rules as if they were separated plans. The same principles apply to the 401(m) arrangement under a plan." |
|
|
Term
|
Definition
| "When a plan switches from using the current year testing method to using the prior year testing method. The NHCE data from plan year 1 is used twice for testing purposes: once to run the test for plan year 1 and again to run the test for plan year 2. Because the NHCE data from plan year 1 has already been used to run the test in the plan year, the double-counting limits affect how the data is used again when the prior year testing method is used in year 2. The double counting limits apply only after there is a switch from using the current year to prior year testing method in the next plan year. " |
|
|
Term
|
Definition
| "The early participation rule makes the ADP and ACP test simpler to perform when otherwise excludable employees are disaggregated for coverage testing purposes, because only one set of tests is required." |
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|
Term
| IRC 410(b)(6)(C) transition period |
|
Definition
| "A controlled group situation can affect coverage testing. When a company is involved in a merger, acquisition, disposition, or spin-off, the make-up of a controlled group or affiliated service group may change. Under a special rule in the IRC, a plan that satisfies coverage at the time of the acquisition or disposition of a related group member is deemed to meet coverage during a transition period following the transaction. This transition period is sometimes referred to as the IRC 410(b)(6)(C) transition period. " |
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|
Term
| Mandatory aggregation rule |
|
Definition
| "If an HCE participates in more than one 401(k) arrangement of the same employer (or a controlled group or affiliated service group), the deferral amounts in all such arrangements are added together in computing the HCE's ADR under EACH arrangement. We refer to this as the mandatory aggregation rule." |
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|
Term
| Otherwise Excludable employee |
|
Definition
| "The IRC and the 401(k) and 401(m) regulations provide for a special testing rule for plans the cover employees sooner than the law requires. These employees are called otherwise excludable employees. Specifically, an otherwise excludable employee is an eligible employee who would not have been an eligible employee if the one-year-of-service and/or age-21 age requirement permitted by the IRC were imposed. Employees who have completed these maximum eligibility requirements are called statutory employees." |
|
|
Term
|
Definition
| "Under the coverage rules, plans may be aggregated to satisfy the coverage tests. This is known as permissive aggregation, because the employer is deciding whether to aggregate the plans in demonstrating whether coverage is satisfied. If plans are not aggregated for coverage, they are treated as separate plans for nondiscrimination testing." |
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Term
|
Definition
| The otherwise excludable employee rule is the only permitted testing option that divides the eligible employees into separate groups for ADP and ACP testing purposes. The Treasury refers to this as restructuring. |
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|
Term
|
Definition
| An employee that has satisfied the one-year-of-service and/or age-21 age requirement permitted by the IRC. (see otherwise excludable employee term) |
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Term
|
Definition
| A plan may not use the 3 percent rule if it is a successor plan to the prior 401(k) plan. A successor plan for this purpose is a plan in which 50 percent or more of the eligible employees for the first plan year were eligible under another 401(k) plan maintained by the same employer in the prior year. The successor plan concept is also used to determine if a newly established plan may be treated as a new plan for purposes of the safe harbor 401(k) rules. |
|
|
Term
|
Definition
| The safe harbor under IRC 401(k) (12) is effective for plan years that begin after 12-31-1998. This is sometimes called a 401(k)(12) safe harbor |
|
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Term
|
Definition
| The safe harbor for QACAs under IRC 401(k)(13) is effective for plan years that begin after 12-31-2007. This is sometimes called a 401(k)(13) safe harbor or a QACA safe harbor. |
|
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Term
|
Definition
| "If the matching contribution formula under a safe harbor 401(k) plan satisfies certain requirements, the matching contributions are deemed to satisfy the ACP test. This is refered to as the ACP safe harbor. To qualify for the ACP safe harbor, the matching formula must satisfy the conditions prescribed by IRC 401(m)(11) (for the 401(k)(12) safe harbor) or IRC 401(m)(12) (for the QACA safe harbor)" |
|
|
Term
|
Definition
| "To qualify for the ADP safe harbor, the 401(k) plan must satiisfy the following conditions: 1) a safe harbor contribution requirement 2) a vesting requirement 3) withdrawl restrictions, and 4) an annual notice requirement." |
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|
Term
| Basic formula under 401(k)(12) safe harbor |
|
Definition
| The basic formula provides the following match: 100% match on the first 3% deferred plus 50% match on the next 2% deferred |
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|
Term
| Basic formula under the QACA 401(k)(13) safe harbor |
|
Definition
| 100% match on the first 1% of deferral plus 50% match on the next 5% of deferral |
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|
Term
| Eligible automatic contribution arrangement |
|
Definition
| "An EACA is an elective deferral arrangement in which: 1) A participant has an option to elect to defer cash cmpensation by having the employer make a contribution to the plan instead 2) A participant is teated as having made an elective deferral election in the amount of an uniform percentage (no minimum or maximum set by the statute) of compensation until the paticipant specifically elects not to have such contributions made (or to have a different percentage contributed) (i.e., the plan has an automatic enrollment feature); 3) In the absense of an investment election by the participant, the automatic enrollment contributions are invested in accordance with DOL regulaitnos; and 4) The notice requirments of IRC 414(w)(4) are satisfied." |
|
|
Term
|
Definition
| Any match formula that provides a greater match than the basic match mormula at any level of deferral - satisfies the ADP safe harbor contribution requirement. |
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|
Term
| Initial automatic enrollment date |
|
Definition
| The date that the first automatic election contribution is made on the participant's behalf. |
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|
Term
| Qualified automatic contribution arrangement (QACA) |
|
Definition
| IRC 401(k)(13) offers an enrollment feature and can satisfy the definition of a QACA. A QACA is an eligible automatic contribution arrangement whereby the automatic enrollment feature meets certain minimum requirements and the plan also satisfies the safe harbor 401(k) plan requirements |
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Term
|
Definition
| The safe harbor for QACAs under IRC 401(k)(13) is effective for plan years that begin after 12-31-2007. This is sometimes called a 401(k)(13) safe harbor or a QACA safe harbor. |
|
|
Term
|
Definition
| A 401(k) plan that satisfies either the requirements of IRC 401(k)(12) or 401(k)(13) is known as a safe harbor 401(k) plan. This is refered to as the ADP safe harbor. |
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|
Term
| Safe harbor nonelective contribution |
|
Definition
| A safe harbor nonelective contribution will satisfy the ADP safe harbor contribution requirement if it equals at least 3% of the employee's compenstion. |
|
|
Term
| Safe harbor matching contribution |
|
Definition
| A safe harbor matching contribution will satisfy thye ADP safe harbor contribution requirement if it is no less than the contribution determined under the basic formula described in IRC 401(k)(12)(B) or under an enhanced formula |
|
|
Term
|
Definition
| "If the employer is inteding to privide the 3% nonelective contribution as the safe harbor contribution, the plan can actually be designed as an ADP-tested plan, with the ability to amend the plan into a safe harbor plan as late as 30 days before the last day of the plan year. To use the technique (the wait-and-see-approach, also termed by many practitioners as the ""maybe notice"" approach), the plan document must be drafted to provide for normal ADP testing." |
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|
Term
|
Definition
| Written notice provided to the employees of a plan given 30 to 60 days in advance. Must detail 1) reason for black out 2) identification of investments and rights affected 3) Expected start and end dates 4) statement to participants to evaluate investments prior to black out 5) name and contact of Fiduciary |
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|
Term
|
Definition
| "Three or more days in which participants are unable to make investment elections or diersify investments, take distributions, or obtain loans from the plan. Requires minimum 30 day advance notice to participants" |
|
|
Term
|
Definition
| Minimum of Three diversified investment options that offer a broad range of investment opportunity |
|
|
Term
|
Definition
| is someone who has discrection or control over the plan's assets or administration |
|
|
Term
|
Definition
| The opportunity to give investment instructions must be available with a frequencey that is appropriate to the volatility of the investment |
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|
Term
|
Definition
| Defined Contribution plans that permit participants to direct their own investments |
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Term
|
Definition
| Recommendations to buy or sell investments based information provided by a person who is licenced and compensated for their services. Or has Discretionary authority with respect to buying or selling securities for the participant |
|
|
Term
|
Definition
| "Mutual Fund, Common or collective trust fund, guaranteed investment contracts (GICs), bank deposits, or pooled separate accounts maintained by an insurance company" |
|
|
Term
|
Definition
| "Fully replacing an old investment with a new investment. Changing out account balances, and investment election allocations from the old fund to the new fund" |
|
|
Term
| Participant-directed Plan |
|
Definition
| "Participants must have 1) the opportunity to exercise control over the assets in their individual accounts AND 2) The opportunity to Choose from a broad range fo investment alternatives, the manner in which some or all of the assets in their accounts are invested" |
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|
Term
| Qualified Default Investment Alternative |
|
Definition
| Must be an investment product or model portfolio that 1) satisfies certain investment characteristics 2)Does not invest in employer securitites 3) does not impose financial penalities on transfers from the QDIA 4) Is managed by an investment manager 5) is diverified to minimize risk of large losses |
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|
Term
|
Definition
| Qualified Defalut Investment Alternative |
|
|
Term
|
Definition
| An age-weighted plan allocates the employer contributions and forfeitures on the basis of the normalization factors used to determin EBARs under the cross-tesing method. Each participant's allocation is based on his or her share of the total normalization factors of all participant's allocaiton is based on his or her share of the total normalization factors of all participants. This type of plan is designed with the intention of using general testing. |
|
|
Term
|
Definition
| "A participants allocation rate is expressed as a percentaqge, determined by dividing the amount allocated by the participant's IRC 414(s) compensation. The allocation rates used for this test cannot be adjusted by imputing permitted disparity." |
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|
Term
|
Definition
| Base compensation means plan year compensation up to the integration level. |
|
|
Term
| Base contribution percentage |
|
Definition
| The base contribution percentage is the portion of the contribution (expressed as a percentage) that is allocated on base compensation. |
|
|
Term
|
Definition
| "The regulations do not require a plan to pass the minimum allocation gateway, so long as each allocation rate can meet the broadly available test. The broadly available test essentailly treats each allocation rate in a manner similar to the way benefits, rights, or features (BRFs) are treated under Treas. Reg. 1.401(a)(4)-4. " |
|
|
Term
|
Definition
| "Under the permitted disparity formula, the contribution is allocated proportionate to the sum of the paln year compensation and the excess compensation (referred to as combined compensation)." |
|
|
Term
|
Definition
| "The customary way of examining nondiscrimination in a defined contribution plan is to examine the contribution rates of particiapnts. If a defined contribution plan uses the benefits basis analysis to determine nondiscrimination, it is called cross-tested. Plans that use this method are also called new comparability plans. " |
|
|
Term
|
Definition
| A design-based safe harbor plan is deemed to provide nondiscriminatory contributions because the allocation formula is designed to produce uniform allocation rates (or rates that are deemed to be uniform). |
|
|
Term
| Equivalent benefit accrual rate (EBAR) |
|
Definition
| "To determine rate groups, a defined contribution plan first must express each participant's allocation of employer contributions and forfeitures as an allocation rate or an equivalent benefit accrual rate (EBAR)." |
|
|
Term
|
Definition
| Compensation in excess of the integration level. |
|
|
Term
| Excess contribution percentage |
|
Definition
| "The excess contribution percentage is the portion of the contribution (expressed as a percentage) that is allocated on excess compensation (i.e., compensation in excess of the integration level)." |
|
|
Term
|
Definition
| "Under the minimum allocation gateway, the lowest permissible allocation rate for any NHCE who benefits under the plan is one-third of the highest allocation rate for any HCE who benefits under the plan. This is also referred to by practitioners as the one-third test. However, if the NHCE receives an allocation that is no less than 5 percent of IRC 415 compensation, the gateway is deemed satisfied. This is referred to by practitioners as the 5 percent test. Thus, for plans that generally provide an allocation to all eligible NHCEs that equals or exceeds 5% of compensation, the gateway test are not an issue." |
|
|
Term
|
Definition
| "Amended regulations require defined contribution plans to meet a gateway test as a precondition to demonstrating satisfaction with IRC 401(a)(4) on a benefits basis (i.e., through cross-testing). This is referred to as a gateway test, because the plan firswt has to meet this requirment before being permitted to enter into cross-tesing, as if this precondition was the gate that opens the cross-testing door. " |
|
|
Term
|
Definition
| "In simplest terms, general testing is a method of demonstration that plan allocations or plan benefits are nondiscriminatory by dividing employees into rate groups, and then analyzing each rate group separately." |
|
|
Term
|
Definition
| "Imputing permitted disparity means the plan is relying on the general test under the IRC 401(a)(4) regulations to show the plan is nondiscriminatory, and is adjusted the allocation rates or benefit rates used in that test to take into account employer-provided Social Security contributions or benefits. " |
|
|
Term
|
Definition
| The integration level may be the taxable wage base or any specified amount less than the taxable wage base. |
|
|
Term
| Maximum disparity allowance |
|
Definition
| The Maximum disparity allowance is the maximum difference between allocations on compensation above the taxable wage base and allocations on compensatoin that is less than the taxable wage base that can be provided without violating the IRC 401(1) safe harbor. |
|
|
Term
| Maximum disparity percentage |
|
Definition
| "The maximum disparity percentage depends on the integration level, and how it compares to the taxable wage base in effect at the beginning of the plan year. The maximum disparity percentage is determined under a defined table. " |
|
|
Term
| Minimum allocation gateway |
|
Definition
| "Under the minimum allocation gateway, the lowest permissible allocation rate for any NHCE who benefits under the plan is one-third of the highest allocation rate for any HCE who benefits under the plan. This is also referred to by practitioners as the one-third test. However, if the NHCE receives an allocation that is no less than 5 percent of IRC 415 compensation, the gateway is deemed satisfied. This is referred to by practitioners as the 5 percent test. Thus, for plans that generally provide an allocation to all eligible NHCEs that equals or exceeds 5% of compensation, the gateway test are not an issue." |
|
|
Term
|
Definition
| "The customary way of examining nondiscrimination in a defined contribution plan is to examine the contribution rates of particiapnts. If a defined contribution plan uses the benefits basis analysis to determine nondiscrimination, it is called cross-tested. Plans that use this method are also called new comparability plans. " |
|
|
Term
| Nondesign-based safe harbor |
|
Definition
| "There is only one type of defined contribution plan that is a nondesign-based safe harbor plan: the uniform points plan. This plan design requires annual testing of the contributions to show IRC 401(a)(4) is satisfied, but the testing method is simpler than the general testing method used for non-safe harbor plans. The allocation method under a uniform points plan does not satisfy the design-based safe harbor, because the allocation is determined with reference to factors other than compensation. Therefore, by design, the allocations cannot satisfy the uniform allocation requirement for design-based safe harbor plans. The nondesign-based safe harbor is not available to ESOPs. " |
|
|
Term
| Normalizing the benefit (normalization) |
|
Definition
| "EBARs are determined by expressing the allocation as an annual benefit payable as a single life annuity at the employee's testing age. This process is known as normalizing the benefit. Under the normalizing process, contributions are projected to normal retirement based on an assumed rate of interest (by multiplying them by an actuaial factor), and then that normal retirement lump sum is converted to a monthly benefit payable for the participant's lifetime (by being multiplied by a normalization factor)." |
|
|
Term
|
Definition
| "Under the minimum allocation gateway, the lowest permissible allocation rate for any NHCE who benefits under the plan is one-third of the highest allocation rate for any HCE who benefits under the plan. This is also referred to by practitioners as the one-third test. However, if the NHCE receives an allocation that is no less than 5 percent of IRC 415 compensation, the gateway is deemed satisfied. This is referred to by practitioners as the 5 percent test. Thus, for plans that generally provide an allocation to all eligible NHCEs that equals or exceeds 5% of compensation, the gateway test are not an issue." |
|
|
Term
|
Definition
| Permitted disparity is the term used in IRC 401(1) for considering the employer's contribution to Social Security on behalf of a plan participant in determining whether the contributions or benefits under a qualified plan are nondiscriminatory. |
|
|
Term
|
Definition
| "Once the allocations are converted into allocation rates or EBARs, the rate groups are then identified by reference to the rate of each HCE. An HCE's rate group includes all employees (HCEs and NHCEs) who have a rate equal to or greater than the HCE's rate. " |
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Term
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Definition
| "The taxable wabe base is the maximum amount of wages that are considered for Social Security purposes. The taxable wabe base is adjusted each calendar year. For example, the taxable wage base is $106,800 for 2009. If the plan year is not a calendar year, the taxable wage base in effect at the beginning of the plan year is used." |
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Term
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Definition
| "The testing age is usually the normal retirement age specified in the plan, unless that age is not a uniform normal retirement age. " |
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Term
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Definition
| "A cornerstone of the design-based safe harbor plan is that the method of allocating the employer contributions must be one that provides a Uniform Allocation, either as a percentage of compensation or a dollar amount. The same allocation formula must apply to all employees." |
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Term
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Definition
| "A uniform points plan uses a pro rata allocation formula, but the formula is based on a participant's points, rather than compensation. Points must be granted for service and/or age. " |
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Term
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Definition
| Payment is made in a single sum to the participant or beneficiary. |
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Term
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Definition
| Payment that is guaranteed for one lifetime or two lifetimes. |
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Term
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Definition
| "Distribution is a perodic payment, such as a monthly or annual payment that is made for a specified period of time." |
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Term
| Qualified Joint and Survivor Annunity (QJSA) |
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Definition
| Provides a life annuity to the participant and a survivor annuity for the spouses life following the pariticpants death. (Plan is required to have unless exemption applies) |
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Term
| Qualified Preretirement Survivor Annuity (QPSA) |
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Definition
| Required death benefit which must provide to the participants surviving spouse unless the QPSA is properly waived. |
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Term
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Definition
| At least two years / Plan may allow the employee to withdraw funds that have been accumulated in the plan for a specified period - at least two years. |
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Term
| Severance from Emplpyment |
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Definition
| Employee no longer works for the employer that maintains the 401)k) plan due to a voluntary or involuntary termination of employment. |
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Term
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Definition
| Must be defined in objective terms - must meet two requirements 1. it must be made on account of an immediate and heavy finanical need. 2. must be necessary to satisfy the financial need. |
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Term
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Definition
| Individual who is named as a beneficiary under the plan and has an unconditional right to all or a portion of the participants account balance upon the participants dealth. |
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Term
| Alternative Defined Contribution Plan |
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Definition
| Any defined contribution plan that exists at anytime during the period beginning on the date of the 401(k) plan's termination and ending 12 months after distribution of all 401(k) plan's assets. |
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Term
|
Definition
| "Distribution made at the employee's election of all contributions made under the auto enroll on behalf of the employee, adjusted for earnings." |
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Term
| Required Minium Distribution (RMD) |
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Definition
| Amount the participant or beneficiary must remove form the plan in a given year under the IRC 401(a)(9). |
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Term
| Required Beginning Date (RBD) |
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Definition
| The date by which a participant must commece RMD's. |
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Term
| Distribution Calendar Year |
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Definition
| A calendar year for which a minium distribution is required. |
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Term
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Definition
| "The default method for calculating minimum distibutions form a defined contribution plan including IRA, 403(b), 457(b) plans." |
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Term
| Annuity Distribution Method |
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Definition
| Annuity contract is purchased with the participant account balance to be the QJSA. Commences no later than the RBD. |
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Term
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Definition
| Calendar year preceding the distribution calendar year. |
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Term
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Definition
| Individual(s) or trust that is: - designated by the participant in a beneficiary election form. - designated by the plan as applying if a participant does not elect his or her beneificary or if the participant elects one or more beneficiaries that are neither individuals nor trust. |
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Term
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Definition
| "Maybe a spouse, or former spouse, or child, or other dependents of the participant who is ""recognized by a domestic relations order as having a right to receive all or a portion of the benefits payable under the plan." |
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Term
| Qualified Domestic Relations Order (QDRO) |
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Definition
| Provides payment of all or a portion of the participant benefits to an alternate payee and satisifies the requirements of IRC 414(p) and ERISA 206(d). |
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Term
| Additonal income tax on early distribuiton |
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Definition
| A tax levied on distributions paid to participant's before he or she attains age 59 1/2. A exception would be for certain substantially equal payments made after a participant's separation form service and distributions made to participants who separate from service after attaining age 55. |
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Term
|
Definition
| "The entire value of a participants accrued benefit, including amounts that are not includible in income (basis)." |
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Term
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Definition
| Amount of the participant's balance that is not included in income. |
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Term
| Eligible rollover distribution |
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Definition
| "Any distribution to the participant of all or any portion of his benefit, unless it is specifically excluded." |
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Term
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Definition
| A payment that constitutes the balance to the credit of the employee and must be made within one taxable year following a proper distribution event. |
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Term
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Definition
| The transfer of a qualified plan distribution (or part of the distribution) to another retirement plan or to an IRA. |
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Term
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Definition
| A cure period is a period of time during which theparticipant may make up any missed loan payments to avoid suffering the tax consequences of a deemed distribution. IRC 72(p) sets limits on the length of the cure period. |
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Term
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Definition
| "If a loan becomes taxable at the time when the participant is not permitted to take a distribution, the effect is a deemed distribution. A deemed distribution is a taxable event - that is, the taxation of a loan to the participant - but not a real distribution. " |
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Term
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Definition
| "When a participant defaults on his or her loan repayment (i.e., defaulted loan), a deemed distributino of the entire unpaid loan balance results because the repayment requirements of IRC 72(p) are no longer being satisfied. " |
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Term
|
Definition
| "A loan that is used to acquire a dwelling which, within a reasonable time, will be used as the participant's principal residence. " |
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Term
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Definition
| "Under IRC 72, payments of funds to a participant are presumably taxable. IRC 72(p) outlines the rules to ensure that a loan is not taxed to the participant. If these rules are violated, the loan will be taxable to the participants. If this occures when the participant is eligible to takea distribution, a loan offset will occure - that is, the loan will be considered to be a real distribution and will be removed permanently from the participant's account. " |
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Term
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Definition
| "Individuals that qualify for increaed loan limits based on being effected by hurricanes Katrina, Rita and Wilma. " |
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Term
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Definition
| Refinancing transaction are transactions in whiich an existing loand is replaced ( or two or more existing loand are replaced) by a new loan. |
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Term
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Definition
| "The repaid loan amount is the highest loan balane in the prior 12-month period, reduced by any outstanding loan balance at the time of the new loan. The general effect of the rule is to limit the total principal amount lent during any 12-month period to $50,000." |
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Term
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Definition
| "To be nontaxable, the repayment period for a perticpant loan, by its terms, must be not more than five years ( or 60 months), unless it is a princiapl residence loan." |
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Term
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Definition
| When refinancing a loan the old loan is the replaced loan. |
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Term
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Definition
| When refinancing a loan the new loan is the replacement loan. |
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Term
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Definition
| A way of structuring the amortization schedule t avoid deemed distribution under a longer-term replacement loan. |
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