APA flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Plan Year

The 12-month period on which a qualified plan's records, valuations, and compliance testing are based; it may differ from the employer's tax year.

Three-Year Cliff Vesting

Maximum vesting schedule for employer contributions under which a participant is 0% vested until completing three years of service, then 100% vested.

Normal Retirement Age

The earlier of the age specified in the plan (not exceeding 65) or the later of age 65 or the fifth anniversary of plan participation.

Annual Funding Notice

ERISA disclosure furnished to participants and beneficiaries within 120 days after the plan year end (or the extended Form 5500 due date for small plans).

Summary Annual Report

A plain-language summary of the Form 5500 furnished to participants within nine months after the plan year end (two months after an extended due date).

At-Risk Plan

A defined benefit plan whose funded percentage is below 80% (or would be under the at-risk rules), requiring termination-based actuarial assumptions.

Anti-Cutback Rule

IRC 411(d)(6) prohibits plan amendments that reduce benefits already accrued; limited exceptions require 204(h) notice for significant reductions.

Minimum Required Contribution

For a DB plan, the target normal cost plus shortfall amortization installment, reduced by the funding standard carryover balance and prefunding balance.

ADP Test Limits

HCE average deferral percentage may not exceed the greater of 125% of NHCE ADP or the lesser of 200% of NHCE ADP or NHCE ADP plus 2 points.

ACP Test

Applies the same 125%/200%+2 limits as the ADP test but to after-tax employee contributions and matching contributions rather than elective deferrals.

Top-Heavy Plan

A plan in which key employee account balances or accrued benefits exceed 60% of total plan balances, triggering a 3% minimum contribution for non-key employees.

402(g) Limit

The annual cap on elective deferrals to 401(k) plans: $23,000 for 2024 and $23,500 for 2025, indexed for inflation.

415(c) Annual Additions Limit

The lesser of 100% of compensation or $69,000 (2024) / $70,000 (2025) on total annual additions to a defined contribution plan.

Highly Compensated Employee

A 5% owner at any time in the current or prior year, or someone whose compensation exceeds the indexed threshold ($155,000 for 2024).

Safe Harbor 401(k)

A 401(k) design using a fully vested 3% nonelective contribution or 4% match to be deemed passing ADP/ACP testing, with required participant notice.

Coverage Ratio Percentage Test

A plan passes coverage if the percentage of NHCEs benefiting is at least 70% of the percentage of HCEs benefiting under IRC 410(b).

Catch-Up Contribution Limit

Additional elective deferral permitted for participants age 50 and older: $7,500 in 2024 and 2025; SECURE 2.0 adds a higher limit for ages 60-63.

Required Beginning Date

April 1 of the year following the later of attainment of the applicable RMD age or retirement, except for 5% owners who use the age date regardless of employment.

RMD Calculation

Prior year-end account balance divided by the Uniform Lifetime Table factor for the participant's age; a younger spouse uses the Joint and Last Survivor Table.

10% Early Distribution Tax

Additional tax on distributions before age 59½, with exceptions including separation at 55+, disability, death, QDRO, and substantially equal periodic payments.

Direct Rollover

A trustee-to-trustee transfer of an eligible rollover distribution that avoids the 20% mandatory withholding otherwise imposed on distributions paid to the participant.

60-Day Rollover

An indirect rollover in which the participant receives the distribution and must redeposit it into an eligible retirement plan within 60 days to avoid taxation.

Net Unrealized Appreciation

Tax treatment for employer securities distributed in kind: cost basis is ordinary income, and appreciation is taxed at long-term capital gains rates when sold.

QDRO Taxation

Distributions to an alternate payee under a qualified domestic relations order are taxable to the alternate payee and exempt from the 10% early distribution tax.

Applicable RMD Age

The age at which RMDs must begin: 73 for individuals reaching age 72 after 2022, rising to 75 for those reaching age 74 after 2032.

ERISA Prudence Duty

The fiduciary standard under ERISA 404(a)(1)(B) requiring the care, skill, and diligence a prudent person would use in like circumstances.

Form 5500 Due Date

The last day of the seventh month after the plan year end (July 31 for calendar-year plans), extendable 2½ months via Form 5558.

ERISA Fidelity Bond

Required bond of 10% of plan assets, minimum $1,000 and maximum $500,000 ($1,000,000 if the plan holds employer securities).

Prohibited Transaction

An ERISA 406 transaction between a plan and a party in interest, such as a sale, loan, or lease, subject to IRC 4975 excise taxes.

Summary Plan Description

A plain-language plan document furnished within 90 days of participation and within 120 days of a material modification; updated at least every 5 or 10 years.

404(c) Participant Direction

ERISA relief for fiduciary liability over participant investment choices when at least three diversified alternatives and required fee disclosures are provided.

Schedule C Reporting

Form 5500 schedule disclosing direct and indirect compensation of $5,000 or more paid to each service provider by the plan.