Assignment 5 - DC Plan Structure

Question 1

DC plan that has set req’d contrib.

• maintains indiv. acct
• ER contribs - A/T basis; fixed % of pay or fixed $ amt.
• annual additions are limited

Answer 1

Money Purchase Pension Plan

Question 2

• DC plan w/ discret. contrib. made by ER.
• can be alloc. based on salary, length of service, or age

Answer 2

Profit Sharing Plan

Question 3

Plan formula which recognizes the FICA tax pd. by the ER

• level of ER contribs. can be higher for EEs earning above a specif’d amt than for those earning below that
• plan’s integration level and the max integration level (SS taxable wage base)
• regs require that diff. b/w plan’s integration level and max integration level cannot exceed a certain amt

Answer 3

Permitted Disparity

Question 4

• 5.7% on excess comp. (over wage base)
• alt. formulas exist for lower integration points

Answer 4

Integration Formulas

Question 5

• form of DC plan that is primarily invested in company stock
• used in conjunction w/ debt financing

Answer 5

EE Stock Ownership Plan (ESOP)

Question 6

• a contrib. to an IRA or 401k plan that is taxed current
• earnings are not taxed upopn distribs if requirements are met (at least 5 years in plan and triggering condition has been met)

Answer 6

ROTH

Question 7

ER DED. LIMIT

Answer 7

25% of elig. payroll

Question 8

• permits the integration of most qualif’d plans with SS
• permits plans to provide higher contribs or benefs. for higher pd EEs in order to compensate for the relative value of SS decr. as pay goes up.

Answer 8

Sect. 401(I)

Question 9

(3) major types of DC plans

Answer 9

1. money purch. pension plans
2. profit sharing plans
3. stock ownership plans

Question 10

• created to invest primarily in ER securities
• can invest up to 100% of plan assets in qualifying ER securities (opposite of ERISA plans)

Answer 10

Stock ownership plans

Question 11

Plan:

• permits EE’s to contrib. portion of their salary into plan on a tax-deferred basis
• configured w/ EE and/or ER contribs.
• offer ERs considerable flexibility in terms of plan designs

Answer 11

401K plans

Question 12

Plan:

• elig. ER’s include = nonprofits under 501(c)(3); public schools, colleges, and universities
• investments in ins. contracts, annuities, or mutual funds
• due to ERISA, now have many of the same requirements that apply to 401(k)s

Answer 12

403(b)

Question 13

plans available for smaller ER’s

Answer 13

SIMPLEs = savings incentive match plans for EE’s

SEPs = simplified EE pensions