Chapter 7
QUALIFIED PLANS: GENERAL RULES OF
QUALIFICATION
LEARNING OBJECTIVES:
A. Have a basic understanding of qualified plan requirements
B. Identify key qualification rules for qualified plans
REVIEW:
This chapter gives an overview of IRC and regulatory requirements to be a
qualified plan. It begins with a discussion of eligibility and coverage, including the
definition of highly-compensated for employee benefit purposes. Next, the
chapter discusses nondiscrimination in benefits and contributions. In this section,
integration with Social Security: defined benefit plans and defined contribution
plans are discussed. Vesting is the next topic discussed. The section on funding
requirements includes actuarial cost methods, actuarial assumptions, deduction
limits, timing of contributions and fiduciary rules. Next, the chapter discusses
limitations on benefits and contributions, and includes information on defined
benefit limits, defined contribution limits, and the compensation limit. Finally, topheavy requirements are briefly covered.
CHAPTER OUTLINE:
A. Eligibility and Coverage
1. Highly Compensated-Definition for Employee Benefit Purposes
B. Nondiscrimination in Benefits and Contributions
1. Integration with Social Security
2. Defined Benefit Plans
3. Defined Contribution Plans
C. Vesting
1
Chapter 7
D. Funding Requirements
1. Actuarial Cost Methods
2. Actuarial Assumptions
3. Deduction Limits
4. Timing of Contributions
5. Fiduciary Rules
E. Limitations of Benefits and Contributions
1. Defined Benefit Limits
2. Defined Contribution Limits
3. Compensation Limit
F. Top-Heavy requirements
G. Chapter Endnotes
FEATURED TOPICS:
Qualified Plan Rules
FIGURES:
Figure 7.1 Safe Harbor Table
Figure 7.2 2009 Covered Compensation Table
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 62: Qualified plan rules and options
A. Nondiscrimination and eligibility requirements
B. Integration with Social Security/disparity limits
D. Top-heavy plans
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Have a basic understanding of qualified plan requirements
2. Identify key qualification rules for qualified plans
Chapter 7
KEY WORDS:
ratio percentage test, average benefit test, highly compensated employee,
nondiscrimination, Social Security integration, covered compensation, vesting,
funding requirements, actuarial cost method, fiduciary rules, top-heavy plan
DISCUSSION:
1. Discuss the application and implications of nondiscrimination
requirements for qualified plans.
2. Discuss qualified plan funding requirements and the implications for
plan sponsors.
QUESTIONS:
1. Which of the following tests alternative overall coverage tests must a qualified
plan satisfy?
(1) ratio percentage test
(2) average benefit test
(3) usual, reasonable and customary test
(4) ADL minimum qualification trigger test
a.
b.
c.
d.
(1) only
(1) and (2) only
(1) (2) and (3) only
(2) (3) and (4) only
Chapter 7, p. 63
2. Which one of the following IRC sections govern or regulate qualified plans?
a.
b.
c.
d.
401
402
501
502
Chapter 7, p. 65
3. Which of the following are methods for integrating defined benefit formulas
with Social Security?
Chapter 7
(1) top-heavy method
(2) safe harbor method
(3) excess method
(4) offset method
a.
b.
c.
d.
(1) and (2) only
(2) and (3) only
(3) and (4) only
(1) (3) and (4) only
Chapter 7, pp. 65-66
4. What is the maximum number of years of service a plan may require before a
participant is 100% vested in a qualified plan?
a.
b.
c.
d.
1
3
5
7
Chapter 7, p. 68
ANSWERS:
1. b
2. a
3. c
4. d