QKA key terms

Federal law enacted in 1974 that sets minimum standards for private-sector retirement plans, covering fiduciary duties, funding, vesting, reporting, and disclosure to participants and beneficiaries.

An employer retirement plan that meets Internal Revenue Code Section 401(a) requirements, so the trust avoids current taxation and the employer deducts contributions within limits.

Requirement that plan assets be held and used solely to provide benefits to participants and beneficiaries and to pay reasonable administrative expenses, never diverted to the employer.

The written instrument establishing the plan and stating its eligibility, contribution, vesting, distribution, and loan provisions; operations must follow its terms to preserve qualified status.

Annual test showing a plan benefits enough rank-and-file employees, generally 70 percent of non-highly compensated employees or a passing average benefit percentage and nondiscriminatory classification.

Plan provisions setting the minimum age and service an employee must complete before becoming a participant; the law caps age at 21 and service at one year.

The plan-specified date on which an eligible employee begins participating, such as the first day of the plan year or month, subject to limits on how long entry may be delayed.

An employee who owned more than 5 percent of the employer at any time, or whose prior-year compensation exceeded the indexed amount, with a top-paid group election available to narrow the group.

Employers linked by common ownership or control that are treated as one employer when applying coverage, nondiscrimination, top-heavy, and compensation limit rules.

The pay definition a plan uses for contributions and testing, which may include or exclude items such as bonuses and overtime and must respect the indexed Section 401(a)(17) cap.

Nondiscrimination test comparing the average deferral percentage of highly compensated employees with that of non-highly compensated employees, limiting deferrals for the highly paid group.

Nondiscrimination test comparing average employer matching and after-tax contribution rates of highly compensated employees with those of non-highly compensated employees.

Design using required matching or nonelective contributions that are fully vested, plus required notice, to avoid ADP and ACP testing if all conditions are satisfied.

Annual cap on elective deferrals an employee may exclude from income, applied across plans of unrelated employers; excess deferrals must be corrected and become taxable.

Cap on total annual additions to a participant's account from deferrals, employer contributions, and forfeitures, generally the lesser of an indexed dollar amount or 100 percent of compensation.

Extra elective deferral allowed for participants age 50 or older, indexed annually and excluded from the 415(c) annual additions limit and from ADP testing.

Nondiscrimination rule requiring contributions or benefits not favor highly compensated employees, demonstrated through safe harbors, rate group testing, or a general test of allocation rates.

Minimum amount that must be paid each year from a plan or IRA beginning at the required beginning date, calculated from the account balance and prescribed life expectancy tables.

Withdrawal from a 401(k) account allowed for an immediate and heavy financial need, limited to the amount needed and permitted only under safe harbor or facts-and-circumstances standards.

Loan from a plan to a participant that avoids prohibited transaction treatment when it charges reasonable interest, is adequately secured, and stays within dollar and percentage limits.

A distribution a participant may roll over tax-free to an IRA or another eligible plan, generally any payment other than certain periodic payments, required minimum distributions, and hardship withdrawals.

Rule requiring 20 percent federal income tax withholding from an eligible rollover distribution paid to the participant unless it is sent directly to another plan or IRA.

Additional federal income tax under Code Section 72(t) on plan distributions taken before age 59 1/2, unless an exception such as disability or qualifying separation from service applies.

A person with discretionary authority over plan management or assets, or who gives investment advice for a fee, and must act prudently, loyally, and solely in participants' interest.

Dealing between a plan and a party in interest, such as a sale, loan, or service arrangement, that ERISA forbids unless a statutory or administrative exemption applies.

Annual return and report most ERISA plans must file, disclosing financial condition, participant counts, service providers, and compliance information; smaller plans may use a short form.

Plain-language document furnished to participants describing plan benefits, rights, and obligations, which must be updated and redistributed when plan provisions change materially.

Insurance covering persons who handle plan funds against loss from fraud or dishonesty, generally set at 10 percent of funds handled, subject to a floor and a cap.

Tax form reporting each plan distribution to the participant and the IRS, showing the taxable amount, distribution code, and any federal income tax withheld.

Plan in which more than 60 percent of account balances or accrued benefits belong to key employees, measured at the end of the prior plan year, triggering minimum contributions and faster vesting.

Employee who is a more-than-5 percent owner, a more-than-1 percent owner earning above the indexed amount, or an officer earning above the indexed officer threshold.

Contribution of at least 3 percent of compensation required for non-key employees in a top-heavy defined contribution plan, generally allocated to all eligible non-key participants.

Rules setting the percentage of employer contributions a participant has earned the right to keep, which must meet statutory minimum schedules such as graded or cliff vesting.

Prohibition on plan amendments that reduce a participant's accrued benefit, including vesting percentages already earned, apart from narrowly defined exceptions.

A period in which an employee fails to complete the hours or service the plan requires, which can affect eligibility, vesting credit, and whether forfeited amounts must be restored.

IRS correction program letting plan sponsors fix qualification failures, whether operational, documentary, or demographic, while preserving the plan's tax-favored status.

EPCRS component allowing sponsors to fix certain operational failures without IRS involvement when the plan has compliant documents and practices and correction is timely.

EPCRS component in which a sponsor submits a correction proposal and fee to the IRS and receives approval before fixing failures that self-correction cannot resolve.

Failure to follow the plan's written terms in daily administration, such as omitting eligible employees or misapplying vesting, even though the document itself is compliant.

Method of fixing testing or contribution errors by returning excess amounts to affected employees, reallocating contributions, or making qualified nonelective contributions to bring the plan into compliance.