Money Purchase Plan Characteristics - ANSWER -defined contribution plan
-defined contribution formula
-permit distribution upon: retirement, death, disability, termination, in-service
-minimum funding requirements: required to make certain contributions
-required to comply with QJSA
-distribution must be annuity (unless participant/spouse consent to alternative payment)
-plans adopted in 2025 do not permit employee elective deferrals
Profit-sharing plan characteristics - ANSWER -defined contribution plan
-employers contribution may be discretionary, formula not required
-can include 401(k) feature
-contributions must be substantial and recurring
-allocation formula must be in plan doc
-flexible distribution rules
-in-service distributions allowed for: hardship, QBAD, disability, 59.5
-required to comply with QJSA if they fail exemptions
401(k) plan characteristics - ANSWER -profit-sharing or stock bonus plan that allows for
elective deferrals
-may allow PLESA
-cannot be adopted by state/local gov employers
-contributions made to a 401(k) plan: after-tax, PLESA, matching contributions, nonelective
contributions
Stock bonus plan characteristics - ANSWER -defined contributions plan
1
,-same contribution/allocation formula options as PS plan > discretionary formula
-invested primarily in employer stock/distributed as stock
-employer can make contributions in form of stock
ESOP plan characteristics - ANSWER -defined contribution plan
-employee stock ownership plan
-invested primarily in employer securities/stock
-may be stock bonus or combo of stock bonus/money purchase
-entire plan may be ESOP or portion
-contribution/allocation formulas same as PS
defined contribution plan (non pension) - ANSWER -two types: profit-sharing and stock
bonus
-maintains individual account for each participant-benefit is based solely on value of acct
balance-balance
-reflects contributions, forfeitures, and earnings (and deducted expenses)
-employee bears the risk
-many plans permit participants to direct investments
-no contribution mandatory, must be recurring and substantial
-no guaranteed benefit
Pension (defined benefits) - ANSWER -do not maintain individual account balances
-guarantees a determinable benefit to participants
-there must be a formula for determining the participant's benefit
-defined benefit plans are pension plans
-employer bears the risk
-subject to minimum funding requirement
-may not make hardship distributions
2
,-payments may be paid as an annuity
-employer is responsible to ensure the plan has enough money to provide all benefits
-contributions required even if company has a bad year
reason for money purchase plan - ANSWER -employers want obligation to make contribu-
tions, can be communicated to employees
-unions/other classes want certainty of contributions
reason for profit sharing plan - ANSWER -flexible contributions and distributions
-ability to add 401(k) deferral feature
reason for stock bonus plan - ANSWER -required to be invested primarily in employer
stock
reasons for defined benefit plan - ANSWER -contributions can be very large (more than
defined contributions max)
-accumulate larger benefits for owners/key employees
SEP Plan - ANSWER -simplified employee pension
-only employer contributions
-contributions allocated to individual IRA
-fully vested immediately
-employees must participate once they have 3 out of 5 years of service
-no minimum number of hours required
-no restriction on withdrawals
-allocation formulas similar to PS plan: pro-rata, permitted disparity
-minimum 21 years old
-no 5500
3
, -comp capped at max under 401(a)
-max contribution/ deduction per participant is lesser of 25% of comp or 415 limit
-top heavy rules apply
SIMPLE IRA - ANSWER -savings incentive match plan for employees
-may make elective deferrals, pre-tax or Roth
-deferral limit is smaller than 401(k)
-contributions allocated to individual IRA
-100 or fewer employees (employed at any time during calendar year)
-no testing exempt from top heavy/non discrimination
-no restrictions on withdrawals
-distributions within first 2 years of participation may be subject to increased excise tax prior
to 59.5-increase excise from 10% to 25%
-fully vested immediately
-no 5500
-plan year same as calendar year
-employer can only make one of the following contributions: match 100% of deferral up to
3% of comp OR nonelective 2% of comp
SIMPLE 401(k) - ANSWER -qualified plan subject to SIMPLE IRA rules
-contributions made to trust
-less than 100 employees
-lower dollar limit on elective deferrals/catch-up
-employer contribution formula requirements
-nondiscriminatory test satisfied/no top heavy rules
-fully vested immediately
-loans permitted
-form 5500 required
4
-defined contribution formula
-permit distribution upon: retirement, death, disability, termination, in-service
-minimum funding requirements: required to make certain contributions
-required to comply with QJSA
-distribution must be annuity (unless participant/spouse consent to alternative payment)
-plans adopted in 2025 do not permit employee elective deferrals
Profit-sharing plan characteristics - ANSWER -defined contribution plan
-employers contribution may be discretionary, formula not required
-can include 401(k) feature
-contributions must be substantial and recurring
-allocation formula must be in plan doc
-flexible distribution rules
-in-service distributions allowed for: hardship, QBAD, disability, 59.5
-required to comply with QJSA if they fail exemptions
401(k) plan characteristics - ANSWER -profit-sharing or stock bonus plan that allows for
elective deferrals
-may allow PLESA
-cannot be adopted by state/local gov employers
-contributions made to a 401(k) plan: after-tax, PLESA, matching contributions, nonelective
contributions
Stock bonus plan characteristics - ANSWER -defined contributions plan
1
,-same contribution/allocation formula options as PS plan > discretionary formula
-invested primarily in employer stock/distributed as stock
-employer can make contributions in form of stock
ESOP plan characteristics - ANSWER -defined contribution plan
-employee stock ownership plan
-invested primarily in employer securities/stock
-may be stock bonus or combo of stock bonus/money purchase
-entire plan may be ESOP or portion
-contribution/allocation formulas same as PS
defined contribution plan (non pension) - ANSWER -two types: profit-sharing and stock
bonus
-maintains individual account for each participant-benefit is based solely on value of acct
balance-balance
-reflects contributions, forfeitures, and earnings (and deducted expenses)
-employee bears the risk
-many plans permit participants to direct investments
-no contribution mandatory, must be recurring and substantial
-no guaranteed benefit
Pension (defined benefits) - ANSWER -do not maintain individual account balances
-guarantees a determinable benefit to participants
-there must be a formula for determining the participant's benefit
-defined benefit plans are pension plans
-employer bears the risk
-subject to minimum funding requirement
-may not make hardship distributions
2
,-payments may be paid as an annuity
-employer is responsible to ensure the plan has enough money to provide all benefits
-contributions required even if company has a bad year
reason for money purchase plan - ANSWER -employers want obligation to make contribu-
tions, can be communicated to employees
-unions/other classes want certainty of contributions
reason for profit sharing plan - ANSWER -flexible contributions and distributions
-ability to add 401(k) deferral feature
reason for stock bonus plan - ANSWER -required to be invested primarily in employer
stock
reasons for defined benefit plan - ANSWER -contributions can be very large (more than
defined contributions max)
-accumulate larger benefits for owners/key employees
SEP Plan - ANSWER -simplified employee pension
-only employer contributions
-contributions allocated to individual IRA
-fully vested immediately
-employees must participate once they have 3 out of 5 years of service
-no minimum number of hours required
-no restriction on withdrawals
-allocation formulas similar to PS plan: pro-rata, permitted disparity
-minimum 21 years old
-no 5500
3
, -comp capped at max under 401(a)
-max contribution/ deduction per participant is lesser of 25% of comp or 415 limit
-top heavy rules apply
SIMPLE IRA - ANSWER -savings incentive match plan for employees
-may make elective deferrals, pre-tax or Roth
-deferral limit is smaller than 401(k)
-contributions allocated to individual IRA
-100 or fewer employees (employed at any time during calendar year)
-no testing exempt from top heavy/non discrimination
-no restrictions on withdrawals
-distributions within first 2 years of participation may be subject to increased excise tax prior
to 59.5-increase excise from 10% to 25%
-fully vested immediately
-no 5500
-plan year same as calendar year
-employer can only make one of the following contributions: match 100% of deferral up to
3% of comp OR nonelective 2% of comp
SIMPLE 401(k) - ANSWER -qualified plan subject to SIMPLE IRA rules
-contributions made to trust
-less than 100 employees
-lower dollar limit on elective deferrals/catch-up
-employer contribution formula requirements
-nondiscriminatory test satisfied/no top heavy rules
-fully vested immediately
-loans permitted
-form 5500 required
4
