Term
| The basic formula to determine a benefit (Account balance) under a defined contribution plan is: |
|
Definition
| Opening balance + contributions +- investment earnings +- Forfeitures –Distributions = Closing Balance |
|
|
Term
| When different vesting schedules apply to different types of contributions, what must happen? |
|
Definition
| separate account balances must be maintained |
|
|
Term
| DC plan can be PS or MP; what is the difference? |
|
Definition
| whether there is a fixed contribution requirement |
|
|
Term
|
Definition
| 401k (employee funded), matching contributions uniform or non uniform allocation formulas |
|
|
Term
| MP plans include uniform allocation or non uniform allocation formulas subject to |
|
Definition
| special non discrimination testing |
|
|
Term
| DC plan with a required contribution that is designed with the intent to achieve a specified benefit level at retirement age, however still places the investment risk with the participant since the account balance will be subject to actual investment return |
|
Definition
|
|
Term
| Most common type of plan currently in use |
|
Definition
| 401k; plan participant to elect to have a portion of his or her wages withheld and contributed directly to the qualified plan trust |
|
|
Term
| The matching contribution can be a fixed formula or a discretionary formula incorporating |
|
Definition
| limits based on a dollar amount or percentage of wages |
|
|
Term
| 401k plans are subject to annual non discrimination tests unless |
|
Definition
| the plan uses a safe harbor 401k feature |
|
|
Term
| The average deferral percentage (ADP) for the HCEs cannot exceed |
|
Definition
| 125% of the ADP for the NHCEs or 200% (and be 2% greater) |
|
|
Term
| Deferrals divided by compensation (limited to $245,000) |
|
Definition
|
|
Term
| If the ADP test is failed than HCEs must |
|
Definition
| either have some of their 401k deferrals returned to or the employer must make special contributions for the NHCEs so that the test is passed. |
|
|
Term
| Plans that have matching contributions are subject to similar non-discrimination testing based on matching contributions made referred to as |
|
Definition
| Actual Contribution Test (ACP) |
|
|
Term
| If the ACP test is failed the employer must |
|
Definition
| either make additional contributions to the NHCEs or make a correction for the HCEs. The correction requires taxable distributions if the matching contributions were vested or forfeitures if not vested |
|
|
Term
| A Roth 401k operates the same as a traditional 401k except |
|
Definition
| there is no deduction for the contributions and qualified Roth distribution are fully income tax free |
|
|
Term
| There is no such thing as a |
|
Definition
| matching Roth contribution |
|
|
Term
| A plan with a 401k feature is not required to |
|
Definition
|
|
Term
| Under a safe harbor 401k the employer commits to |
|
Definition
| either a non elective contribution or a matching contribution. Both must be fully vested and are generally non conditional for the year. The contribution must apply to all eligible NHCEs, and can apply to some or all of the HCEs. |
|
|
Term
| What must happen prior to the beginning of the year that the plan will be safe harbor for that year and the type of safe harbor formula? |
|
Definition
| Participants must be notified in writing |
|
|
Term
| The non elective is __ of wages and the matching is ______ of wages and ____ of additional wages (with a ___ of wages total requirement). |
|
Definition
| 3%, 100% up to 3%, 50%, 4% |
|
|
Term
| Loans must be in writing include |
|
Definition
| a promissory note and an amortization schedule. |
|
|
Term
| The loan must be repaid (usually a reasonable interest rate) on at least |
|
Definition
| a quarterly basis with an amortization of the principal with a maximum term of 5 years or 15 (if for a principal residency). |
|
|
Term
| If a loan goes into default the outstanding balance is |
|
Definition
| deemed a taxable plan distribution. |
|
|
Term
| Are responsible for providing a sufficient level of education regarding plan investments that is reflective of the choices permitted |
|
Definition
| The plan administrator and Trustees |
|
|
Term
| It is now common that DC plans offer as a core a selection of _____________ which can be either life cycle or target date |
|
Definition
| 3-5 managed funds (each with an alternative risk/reward profile) |
|
|
Term
| ________ expenses are often but not always paid by the sponsor |
|
Definition
|
|
Term
| Investment related fees including ________________ are generally paid by plan accounts either directly or indirectly |
|
Definition
| transaction fees, investment management fees and mutual fund expenses |
|
|
Term
| The liability under the balance sheet is |
|
Definition
| any contribution yet to be funded for the year |
|
|
Term
| The employer is limited to a tax deduction of __________ for its annual contributions to a defined contribution plan and cannot be circumvented by _________. |
|
Definition
| 25% of covered wages, using multiple plans; In addition this 25% may be reduced where the employer also maintains a defined benefit plan. When calculating this limit 401k contributions are not counted nor are they subtracted from wages in determining the covered wage amount. |
|
|
