FAQ - Defined Benefit Plans

Generally, yes. The Employer selects the eligibility requirements
for the plan. Some plans allow immediate entry, while others may adopt a minimum age and/or service condition. The greatest minimum age and service requirements are age 21 and one year of service (in a 401(k) plan). If the plan it not a 401(k) plan, the employer may set a longer service requirement, but not to exceed two years.

A defined benefit plan does not maintain account balances; therefore, contributions are not allocated or credited to the participant’s account.” Instead, eligible participants accrue a benefit which is determined by the formula stated in the plan. The method of accruing the benefit depends on the design of the plan (please refer to your Summary Plan Description or contact your Retirement Plan Consultant). The contributions made to the plan and earnings from the plan’s investments are used to pay the benefits accrued under the plan.

A 401(k) plan can be designed to provide for automatic salary deferrals, but most 401(k) plans have voluntary enrollment.
The IRS sets a limit on the amount a participant may defer in a given calendar year. This limit is indexed for cost of living increases. The 2010 dollar limit is $16,500. Participants who are at least age 50 may defer an additional “catch-up” amount. For 2010 the catch-up limit is $5,500.

Yes, the plan will specify the period in which the participant can change, modify or discontinue the amount they defer into the plan.

In order to borrow, the plan must permit loans. If loans are allowed, the plan’s written Loan Policy defines the procedures on loans. This written policy states how much may be borrowed and the conditions and terms for loans, i.e., the loan amount, length of loan, interest rate, payment period, and the number of loans allowed.
In general, the maximum loan amount is 50% of the participant’s vested benefit not to exceed $50,000. If the participant has or had other loans, the $50,000 maximum is reduced by the highest outstanding loan balance during the one year period of receiving the new loan.

Each plan must define the rules, provisions, options and events
for receiving a distribution from the plan. Your plan may not permit
distributions in every situation noted below, but in general a plan may permit distributions upon:

  • separation from service
  • stated age, i.e., 65
  • retirement
  • death
  • plan termination

FAQ - Defined Contribution Plans

Generally, yes. The Employer selects the eligibility requirements for the plan. Some plans allow immediate entry, while others may adopt a minimum age and/or service condition. The greatest minimum age and service requirements are age 21 and one year of service (in a 401(k) plan). If the plan it not a 401(k) plan, the employer may set a longer service requirement, but not to exceed two years.
If the contribution is not a “safe harbor contribution” the plan may require participants to work at least 1000 hours and to be employed on the last day of the plan year to be eligible for employer contributions. If these conditions apply and if the participant has satisfied these conditions, the employer’s contribution is then allocated according to a pre-determined formula stated in the plan document. If the plan is a profit sharing plan with no safe harbor condition, employer contributions are not mandatory.

A 401(k) plan can be designed to provide for automatic salary deferrals, but most 401(k) plans have voluntary enrollment.

The IRS sets a limit on the amount a participant may defer in a given calendar year. This limit is indexed for cost of living increases. The 2010 dollar limit is $16,500. Participants who are at least age 50 may defer an additional “catch-up” amount. For 2010 the catch-up limit is $5,500.

Yes, the plan will specify the period in which the participant can change, modify or discontinue the amount they defer into the plan.

In order to borrow, the plan must permit loans. If loans are allowed, the plan’s written Loan Policy defines the procedures on loans. This written policy states how much may be borrowed and the conditions and terms for loans, i.e., the loan amount, length of loan, interest rate, payment period, and the number of loans allowed.
In general, the maximum loan amount is 50% of the participant’s vested benefit not to exceed $50,000. If the participant has or had other loans, the $50,000 maximum is reduced by the highest outstanding loan balance during the one year period of receiving the new loan.

ach plan must define the rules, provisions, options and events
for receiving a distribution from the plan. Your plan may not permit distributions in every situation noted below, but in general a plan may permit distributions upon:

  • Separation from service
  • Stated age, i.e., 59 ½
  • Hardship
  • Disability
  • Retirement
  • Death
  • Plan Termination

 

Qualified Retirement Plans are subject to a number of government  imposed laws, which set the rules and regulations for plan compliance.  Although laws dictate the minimum standards by which plan sponsors must comply, there is some flexibility in the plan design. Thus, not all answers to Frequently Asked Questions (FAQs) apply to every plan or situation. For example, some employers may not establish the minimum eligibility requirements. Thus, the FAQs are intended to provide general answers. To obtain more specific information about your plan, please refer to your Summary Plan Description or contact your Retirement Plan Consultant.
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PURSUE YOUR INDEPENDANCE

Optimize Your Path

Let us help you reach your retirement goals

(714) 974-8900
get started today