Defined contribution plan - ANSWER retirement plan in which the employer sets up an
individual account for each employee and specifies the size of the investment into that ac-
count
401(k) plan - ANSWER a tax-deferred retirement plan offered to employees by their em-
ployer
401(k) Plan Features - ANSWER - can be Profit Sharing or Stock Bonus
- always has elective deferrals
- all employers except government
- combo of employee + employer (matching and nonelective) contributions
Money Purchase Plan - ANSWER Defined contribution plan with mandatory employer
contributions and no employee contributions
Money Purchase Plan Features - ANSWER - plan that uses a fixed percentage of employee
earnings to defer compensation
- good for organizations with relatively stable earnings percentage is fixed
- contributions must be made every year
- contribution limits are same as profit-sharing plans
Pension plan - ANSWER a retirement plan that is funded at least in part by an employer
Pension Plan Features - ANSWER - plan with minimum funding requirement
- no hardship distributions
1
,Profit-sharing plan - ANSWER an organization-wide plan that distributes compensation
based on some established formula designed around a company's profitability
Profit Sharing Plan Features - ANSWER - plan with optional employer contributions
- 401(k) feature
- Discretionary employer contribution formula
- flexible distribution rules
- shares profit with all employees
Stock Bonus Plan - ANSWER a type of profit-sharing plan in which the employer rewards
employees with company stock instead of cash
Employee Stock Ownership Plan (ESOP) - ANSWER a company-established benefits plan
in which employees acquire stock, often at below-market prices, as part of their benefits.
Can be combined with other DC plan or money purchase plan, or just stock bonus
403(b) plan - ANSWER a tax-deferred retirement plan for employees of tax-exempt organ-
izations
403(b) Plan + ERISA - ANSWER Plan that can be exempt from ERISA if they have no em-
ployer contributions and the employer has limited involvement, and is not subject to
ADP/coverage testing
Defined benefit plan - ANSWER pension plan that guarantees a specified level of retire-
ment income
Simple employer plan (SEP) - ANSWER - Plan for small businesses
- only has employer contributions
- all eligible employees must participate
2
, - low admin
- Pro-rata based on compensation or permitted disparity
Permitted Disparity Formula - ANSWER *PD=Excess cont % - Base Cont %*
*DC PD*
Lesser of
I. Base contribution % or ii. 5.7%
*DB D*
Lesser of
I. 1/2 excess bene % or ii. 5.7%
Permitted Disparity (Social Security Integration) - ANSWER A technique or method of al-
locating qualified plan contributions to an employee account that provides a higher contri-
bution to those employees whose compensation is in excess of the Social Security wage base
($137,700 for 2020) or selected integration level for the plan year.
SIMPLE IRA - ANSWER an IRA for small businesses in which the employer matches em-
ployee contributions
SIMPLE 401(k) - ANSWER -a cross between a simple ira and traditional 401(k) plan and
offers some features of both plans.
-employee is vested immediately.
- for small businesses
Retirement Plan Government Requirements - ANSWER Satisfying ERISA + IRC Sec 401(a)
ERISA - ANSWER - Body of law that governs retirement plans
- Governs through DOL or Dept. Of Treasury (IRS)
3
individual account for each employee and specifies the size of the investment into that ac-
count
401(k) plan - ANSWER a tax-deferred retirement plan offered to employees by their em-
ployer
401(k) Plan Features - ANSWER - can be Profit Sharing or Stock Bonus
- always has elective deferrals
- all employers except government
- combo of employee + employer (matching and nonelective) contributions
Money Purchase Plan - ANSWER Defined contribution plan with mandatory employer
contributions and no employee contributions
Money Purchase Plan Features - ANSWER - plan that uses a fixed percentage of employee
earnings to defer compensation
- good for organizations with relatively stable earnings percentage is fixed
- contributions must be made every year
- contribution limits are same as profit-sharing plans
Pension plan - ANSWER a retirement plan that is funded at least in part by an employer
Pension Plan Features - ANSWER - plan with minimum funding requirement
- no hardship distributions
1
,Profit-sharing plan - ANSWER an organization-wide plan that distributes compensation
based on some established formula designed around a company's profitability
Profit Sharing Plan Features - ANSWER - plan with optional employer contributions
- 401(k) feature
- Discretionary employer contribution formula
- flexible distribution rules
- shares profit with all employees
Stock Bonus Plan - ANSWER a type of profit-sharing plan in which the employer rewards
employees with company stock instead of cash
Employee Stock Ownership Plan (ESOP) - ANSWER a company-established benefits plan
in which employees acquire stock, often at below-market prices, as part of their benefits.
Can be combined with other DC plan or money purchase plan, or just stock bonus
403(b) plan - ANSWER a tax-deferred retirement plan for employees of tax-exempt organ-
izations
403(b) Plan + ERISA - ANSWER Plan that can be exempt from ERISA if they have no em-
ployer contributions and the employer has limited involvement, and is not subject to
ADP/coverage testing
Defined benefit plan - ANSWER pension plan that guarantees a specified level of retire-
ment income
Simple employer plan (SEP) - ANSWER - Plan for small businesses
- only has employer contributions
- all eligible employees must participate
2
, - low admin
- Pro-rata based on compensation or permitted disparity
Permitted Disparity Formula - ANSWER *PD=Excess cont % - Base Cont %*
*DC PD*
Lesser of
I. Base contribution % or ii. 5.7%
*DB D*
Lesser of
I. 1/2 excess bene % or ii. 5.7%
Permitted Disparity (Social Security Integration) - ANSWER A technique or method of al-
locating qualified plan contributions to an employee account that provides a higher contri-
bution to those employees whose compensation is in excess of the Social Security wage base
($137,700 for 2020) or selected integration level for the plan year.
SIMPLE IRA - ANSWER an IRA for small businesses in which the employer matches em-
ployee contributions
SIMPLE 401(k) - ANSWER -a cross between a simple ira and traditional 401(k) plan and
offers some features of both plans.
-employee is vested immediately.
- for small businesses
Retirement Plan Government Requirements - ANSWER Satisfying ERISA + IRC Sec 401(a)
ERISA - ANSWER - Body of law that governs retirement plans
- Governs through DOL or Dept. Of Treasury (IRS)
3
