QKA flashcards

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

ERISA Title I

Governs fiduciary duties, reporting, and disclosure for employee benefit plans; the Internal Revenue Code governs tax qualification and related excise taxes.

IRC Section 401(a)

Lists qualification requirements a trust must satisfy for a retirement plan to receive tax-exempt status, including coverage, vesting, nondiscrimination, and distribution rules.

Prohibited transaction

A transaction between a plan and a disqualified person that is barred by ERISA section 406 and IRC section 4975, such as a sale or loan, unless an exemption applies.

QDRO

Qualified domestic relations order under ERISA section 206(d)(3) and IRC section 414(p) that assigns part of a participant's benefit to an alternate payee, permitting payment without violating antialienation.

Eligibility age 21

The maximum age a qualified plan may require before allowing participation; plans may use a lower age but generally not a higher one for 401(k) deferrals.

One year of service

For eligibility, generally a 12-month period in which an employee completes at least 1,000 hours of service, unless the plan uses elapsed time.

Ratio percentage test

Coverage test under IRC section 410(b) comparing the percentage of benefiting non-highly compensated employees with the percentage of benefiting highly compensated employees; result must be at least 70%.

Average benefit test

Coverage alternative requiring a nondiscriminatory classification of employees and an average benefit percentage for non-highly compensated employees of at least 70% of that for highly compensated employees.

Long-term part-time rule

SECURE 2.0 requires 401(k) plans to allow deferrals by employees with at least 500 hours in two consecutive years, effective for plan years beginning after 2024.

Section 402(g) limit

Annual cap on elective deferrals to 401(k), 403(b), and certain other plans; indexed, $23,500 for 2025, excluding catch-up contributions.

Section 415(c) limit

Cap on annual additions to a defined contribution plan, equal to the lesser of 100% of compensation or an indexed dollar amount, $70,000 for 2025.

ADP test

Nondiscrimination test comparing highly compensated employees' average deferral percentage with non-highly compensated employees'; HCE result generally must not exceed 125% of NHCE result.

ACP test

Nondiscrimination test for after-tax employee contributions and matching contributions, comparing average contribution percentages of highly compensated and non-highly compensated employees.

Section 401(a)(17) cap

Limits compensation used for plan contributions, allocations, and testing; indexed, $350,000 for 2025, with proration for short service periods in some cases.

Required minimum distribution

Annual minimum amount a retirement plan must distribute beginning at age 73, or age 75 for individuals born in 1960 or later, calculated using an IRS table.

10% early distribution tax

Additional tax under IRC section 72(t) on taxable retirement distributions before age 59½, unless an exception such as disability, death, or qualified domestic relations order applies.

Plan loan limit

A plan loan generally cannot exceed the lesser of $50,000 or 50% of the participant's vested account balance, with a $10,000 minimum loan amount.

Direct rollover

Payment from an eligible retirement plan directly to another eligible plan or IRA, avoiding mandatory 20% withholding that applies to an eligible rollover distribution paid to the participant.

Hardship distribution

A distribution from a 401(k) plan for an immediate and heavy financial need under safe-harbor or facts-and-circumstances standards; it is taxable and may incur the 10% early distribution tax.

Form 5500 due date

Annual report is generally due by the last day of the seventh month after the plan year ends; Form 5558 can request an extension.

Summary Annual Report

Participant disclosure summarizing Form 5500 financial information, generally due within nine months after the plan year ends, or two months after an extended Form 5500 due date.

ERISA fiduciary duties

Plan fiduciaries must act solely in participants' interest, with prudence, diversify investments, follow plan documents, and pay only reasonable expenses.

ERISA fidelity bond

Required bond protecting the plan from fraud or dishonesty, generally set at 10% of plan assets, with a $1,000 minimum and $500,000 maximum.

Top-heavy plan

A plan is top-heavy when more than 60% of total account balances or accrued benefits belong to key employees at the determination date.

Key employee

An employee who is a more-than-5% owner, a more-than-1% owner with compensation above the threshold, or an officer with compensation above the indexed threshold.

Top-heavy minimum

A top-heavy defined contribution plan must generally provide non-key employees a minimum employer contribution of 3% of compensation, unless a comparable defined benefit minimum applies.

Three-year cliff vesting

A vesting schedule under which employer contributions become 100% vested after three years of service, with no partial vesting before that point.

EPCRS

The IRS Employee Plans Compliance Resolution System, which allows plan sponsors to correct qualification failures through self-correction, voluntary correction, or audit procedures.

Self-Correction Program

EPCRS component permitting sponsors to correct certain operational failures without IRS involvement; insignificant failures generally may be corrected at any time.

Voluntary Correction Program

EPCRS procedure for submitting proposed corrections and paying a fee to obtain IRS approval for failures that cannot be self-corrected.

Missed deferral correction

Correction for a participant improperly excluded from deferrals generally includes a qualified nonelective contribution based on the missed deferral plus corrective matching contributions and earnings.

ADP refund deadline

Excess contributions from a failed ADP test must be distributed with earnings within 2½ months after the plan year ends to avoid a 10% excise tax.