Pension Consultant cheat sheet

Plan type selection decision rule: DB maximizes lifetime income and longevity protection; DC shifts investment risk to participants; hybrid (cash balance) blends predictable accrual with account-style statements.

Funding target vs. participant benefit security: consulting analysis compares PBGC guarantee limits, plan termination scenarios, and sponsor covenant strength before recommending DB design.

Fiduciary vs. settler functions: settler decisions (plan design, benefit formula) are not fiduciary acts; administration and investment decisions generally are.

Consulting deliverable set typically includes actuarial valuation, nondiscrimination testing, Form 5500 support, participant disclosures, and funding policy review.

Plan governance calendar: annual valuation and AFTAP, quarterly contribution monitoring, triennial (or annual) funding method review, and periodic fee benchmarking.

Fee benchmarking metrics: per-participant recordkeeping cost, basis points on assets, per-participant actuarial fees, and total plan cost as percentage of assets.

Vendor search process: define scope, issue RFP, score on cost and service, check Form 5500 and DOL/IRS enforcement history, negotiate fee disclosure and termination terms.

Plan merger or spinoff: preserve protected benefits, satisfy 411(d)(6) anti-cutback rules, and address 204(h) notice if future accruals are reduced.

Coverage test (410(b)): ratio percentage of NHCEs benefiting to HCEs benefiting must be at least 70%, or pass average benefit test with nondiscriminatory classification plus average benefit percentage test.

ADP test: HCE average deferral percentage compared to NHCE average using 125% of NHCE rate or NHCE rate plus 2 percentage points, whichever is less (with 2x cap).

ACP test applies the same 125%/2-point structure to matching and after-tax contributions; corrective distributions must occur within 2.5 months after plan year end to avoid 10% excise tax.

Top-heavy rule: if key employee account balances exceed 60% of total plan assets, minimum contribution is 3% of compensation for non-key employees (DC) or 2% per year of service up to 20% (DB).

415(c) annual additions limit: lesser of dollar limit (indexed) or 100% of compensation, covering elective deferrals, employer contributions, forfeitures, and after-tax contributions.

415(b) DB limit: annual benefit at retirement cannot exceed the lesser of the dollar limit (indexed) or 100% of the participant's high-3-year average compensation, reduced for commencement before age 62.

402(g) elective deferral limit is indexed annually and applies per individual across all plans; 401(a)(17) compensation cap is also indexed and limits compensation used for benefits and testing.

Controlled group and affiliated service group rules aggregate employers under 414(b), (c), (m), and (o) for coverage, nondiscrimination, and 415 purposes.

Safe harbor 401(k) designs: 3% nonelective or basic match (100% of first 3% plus 50% of next 2%) exempt the plan from ADP/ACP testing if notice and vesting requirements are met.

ERISA fiduciary duties under 404(a)(1): prudence, loyalty, diversification, and adherence to plan documents, judged by the prudent expert standard.

408(b)(2) fee disclosure requires covered service providers to disclose compensation, fiduciary status, and conflicts; plan fiduciaries must assess reasonableness.

404a-5 participant fee disclosure requires annual and quarterly notices showing plan and investment expenses, including expense ratios.

Form 5500 filing deadline is the last day of the seventh month after plan year end; extensions via Form 5558 add 2.5 months.

ERISA 204(h) notice: at least 45 days advance notice (15 days for small plans) before a significant reduction in future benefit accruals.

PBGC premiums: flat-rate per-participant premium plus variable-rate premium based on unfunded vested benefits, with caps indexed annually.

Prohibited transactions under 406: party-in-interest dealings, self-dealing, and kickbacks; exemptions exist under 408 and individual prohibited transaction exemptions.

EPCRS correction programs: self-correction (SCP) for eligible operational errors, Voluntary Correction Program (VCP) with IRS submission, and Audit CAP for exam findings.

Summary Annual Report must be furnished within 9 months after plan year end (or 2 months after Form 5500 due date if extension applies).

Funding target equals present value of accrued benefits using segment rates and plan assumptions; target normal cost is the present value of benefits accruing during the year.

Minimum required contribution equals target normal cost plus shortfall amortization installments (7-year amortization), minus the funding balance (prefunding balance plus carryover balance).

AFTAP (adjusted funding target attainment percentage) = (assets minus credit balances) / funding target; below 80% triggers benefit restrictions, below 60% freezes accruals and lump sums.

Segment rates: three interest rate segments (0-5, 5-20, over 20 years) published monthly by Treasury; plans may use a 24-month averaging period.

At-risk liability applies to underfunded plans (AFTAP below 80%) with adjusted assumptions reflecting plan termination behavior; it increases funding target and premiums.

Actuarial cost methods for DB: unit credit, entry age normal, and aggregate; the enrolled actuary must use an assumption set that is reasonable in the aggregate.

Mortality and interest assumptions must be reasonable; IRS 430(h)(3) tables apply for minimum funding, and 417(e) rules govern lump-sum present value calculations.

Benefit restriction thresholds: AFTAP below 80% limits lump sums and accrual increases; below 60% prohibits lump sums and benefit accruals; 436 contributions can restore status.

PBGC variable-rate premium uses unfunded vested benefits calculated under PBGC assumptions, not the plan's funding assumptions.