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CEBS GBA EXAM 3 TEST RATED 100% CORRECT
An employee welfare benefit plan has four basis elements. What are these elements? (Mod 1.1) - Correct answer 1) There must be a plan, fund or program.
- The plan, fund or program is established or maintained by an employer.
- The plan, fund or program is for the purpose of providing specifically listed benefits, through the purchase of insurance or otherwise.
- Benefits are provided to participants and beneficiaries. Explain how a "plan, fund or program" for an employee benefit plan is defined (Mod 1.1) - Correct answer The phrase "plan, fund or program" is not defined in ERISA but rather has been laid out in several court cases. Courts have held a "plan, fund or program" under ERISA is established if, from the surrounding circumstances, a reasonable person can ascertain the intended benefits, the class of beneficiaries, the source of financing and the procedure to receive benefits. Describe the procedures required to establish an ERISA employee welfare benefit plan (Mod 1.1) - Correct answer No particular formalities are required to create an ERISA plan and no single action in and of itself necessarily constitutes establishment of ERISA employee welfare benefit plan. Thus, ERISA plans have been deemed to be "established or maintained" by a practice that would cause a reasonable EE to perceive an ongoing commitment by the ER to provide EE benefits. This would include any contributions by an ER toward payment of benefits or by the ER simply administering the benefit. It is easy to have a plan, fund or program - generally any ongoing administrative scheme will satisfy this condition. Showing that an ER maintains a plan is also easy - any contribution by the ER towards payment of benefits or administration of the plan is enough (including a contribution toward insurance coverage). List the types of employee welfare benefit plans not covered under ERISA and specifically excluded under the statute (Mod 1.1) - Correct answer 1) Governmental Plans: includes plans established by the US Gov't, the gov't of any state or political subdivision and any agency of any of the foregoing or a plan to which the Railroad Retirement Act applies, as well as certain plans associated with Native American Tribal gov'ts.
- Church plans: a plan established and maintained for its EE's by a church or by a convention or association of churches is exempt from tax under IRC Sec 501.
- A plan maintained to comply with state laws on Worker's Comp, Unemployment or Mandated Disability Insurance.
- A plan maintained outside the US primarily for nonresident aliens.
- Plans that cover only self-employed individuals and that cover no "common-law employees" generally not subject to ERISA.
- Plans that cover only married shareholders of a corporation are not treated as ERISA plans. ER should be aware that is may be required to comply with other federal laws that affect EE benefit plans. List the types of benefits provided by ERISA health and welfare, and provide examples of such plans (Mod 1.1) - Correct answer a) Medical, Surgical or Hospital Care or Benefits b) Benefits in the event of sickness, accident, disability, death or unemployment c) Vacation Benefits d) Apprenticeship or other training benefits e) Day-care centers f) Scholarship funds g) Prepaid legal services Ex: Medical Insurance, Dental, Vision, Prescription Drug Plans, Drug or Alcohol Treatment programs, FSAs, EAPs, Wellness Programs, AD&D and STD/LTD Plans. Discuss whether plans that involve payroll practices are treated as ERISA health and welfare plans (Mod 1.1) - Correct answer The payment of an employee's normal compensation in full or in part out of the employer's general assets for periods when the employee is physically or mentally unable to work—that is, an unfunded short-term disability plan—is generally not a welfare benefit plan subject to ERISA. However, if a disability program provides more than an employee's normal compensation or is funded in any way—for example, it is provided through insurance - the program will be a welfare benefit plan subject to ERISA. The Dept of Labor (DOL) regulations list additional types of payroll practices as not being ERISA plans. These include plans where compensation is paid to an EE: a) While absent on holiday/vacation b) While absent on active military duty c) While absent for jury duty/witness d) On account of periods of time during which the EE performs little or no work while in training e) EE is relieved of duties while on sabbatical leave or while pursuing further education. For a voluntary benefit arrangement to be exempt from ERISA based on the DOL safe harbor, it must meet certain requirements, which are? (Mod 1.1) - Correct answer a) No ER or EE organization contributions
under the ERISA definition. In addition, because the definition is not limited to current employees, it can include COBRA-qualified beneficiaries, covered retirees and other former EE's who may remain eligible under a plan. (c) Beneficiary: A beneficiary is any person designated by a participant (or by the terms of an ERISA plan) who is or may become entitled to a benefit under the plan. A beneficiary has rights provided under the plan in question, and the plan fiduciaries owe fiduciary duties to plan beneficiaries as well as to plan participants. A beneficiary may sue under ERISA for plan benefits and to remedy ERISA violations. A beneficiary also has the right to examine and request copies of plan documents. What are the main disclosure requirements under ERISA? (Mod 1.2) - Correct answer (a) A plan document must exist for each plan (b) A summary plan description (SPD) must be furnished automatically to participants (c) A summary of material modifications (SMM) must be furnished automatically to participants when a plan is amended (d) A four-page summary of benefits and coverage (SBC) must be provided to applicants and enrollees before enrollment or reenrollment (e) Copies of certain plan documents must be furnished to participants and beneficiaries upon written request (f) Claim procedures must be established and followed when processing benefits claims and when reviewing appeals of denied claims What are the main requirements that pertain to ERISA plan assets? (Mod 1.2) - Correct answer a) Plan assets, including participant contributions, may be used only to pay plan benefits and reasonable admin costs. b) For some plans, plan assets may have to be held in trust. c) A fidelity bond must be purchased to cover every person who handles plan funds. Define plan document and explain why it is vital to meet the written document requirement (Mod 1.2) - Correct answer ERISA requires that every ERISA health and welfare plan be established and maintained in writing, and the scope of an ERISA plan is defined by the official plan document. The plan document describes the plan's terms and conditions related to the operation and administration of a plan. An insurance company's master contract, certificate of coverage or summary of benefits is usually not
sufficient to serve as a legal plan document and rarely fully protects the plan sponsor. Every plan participant has the right to examine the plan document. What specific liabilities or problems exist for an ER that fails to have a plan document? (Mod 1.2) - Correct answer An ERISA plan may still exist even w/o a written plan document. A plan administrator's failure or refusal to put a plan in writing is merely a violation of ERISA and does not avoid coverage of the plan by ERISA. Failure to have a plan established in writing can result in the following liabilities or problems for the employer: (a) Participants and beneficiaries may bring suit to enforce the ERISA written plan document requirement. Legal action may require the preparation of a formal document where none currently exists. (b) A plan document must be furnished in response to a participant's written request. The plan administrator may be charged up to $110 per day if the document is not provided within 30 days of a request.* (c) Criminal penalties may be imposed on any individual or company that willfully violates any requirement of Title I of ERISA, which includes disclosure rules. The penalty per conviction could be $100,000 and/or imprisonment for up to ten years. The fine can be increased up to $500,000 if it is against a company. (d) It can be difficult to prove plan terms and thus enforce plan provisions. (e) Participants and beneficiaries who sue to enforce informal, unwritten plans can base their claims on past practice or other evidence outside the actual terms of a written plan document that is favorable to their position. (f) A plan sponsor may not be able to amend or terminate an informal plan until it first adopts a written plan instrument, complete with the required ERISA procedure for amending the plan and for identifying persons having authority to amend the plan. (g) ERISA requires a fiduciary to act "in accordance with the documents and instruments governing the plan." This duty provides yet another incentive for careful plan drafting since, once reduced to writing as part of the plan document, plan language must generally be followed. *The $110 per day amount along with other civil penalties violating ERISA provisions was increased in Aug 2016 - in addition, the DOL announced inflation adjustments to these penalties will occur annually. Describe a "wrapper plan document" (Mod 1.2) - Correct answer A wrapper plan document is the typical way of supplementing an insurance company's certificate of coverage or insurance contract with the missing ERISA provisions. The wrapper document should make clear to the participants that its contents and the carrier's documents together constitute the plan document for the plan. If more than one benefit program is included under a single ERISA plan number (e.g., health, vision, dental and employee assistance plan benefits), then a wrapper plan document should be prepared to
(b) First-class mail (c) Second or third-class mail, but only if return and forwarding postage is guaranteed and address correction is requested (d) Inclusion in a union or company publication, but only if certain requirements are met (e) Disclosure to participants (both employees and nonemployees) may be made electronically (for example, by e-mail, an intranet or the Internet). This option is not without limit, however. DOL issued a safe harbor rule, meaning that plans are not required to comply with its conditions; however, compliance ensures that DOL will find a plan's electronic delivery method acceptable. As outlined in the rule, all ERISA Title I plan documents and notices, including SPDs, SMMs and summary annual reports (SARs), may be furnished electronically. Compliance with the safe harbor rules for electronic distribution depends on whether the plan participant has work-related computer access or non-work related computer access. Explain the purposes of the SBC (Mod 1.3) - Correct answer SBC = Summary of Benefits and Coverage ERISA disclosure requirements have been expanded by the health care reform requirement to provide a four-page SBC to applicants and enrollees before enrollment or reenrollment. The summary must accurately describe the "benefits and coverage under the applicable plan or coverage." The SBC requirement applies in addition to the SPD and SMM requirements under ERISA. Describe the basic rules for presenting the SBC to entitled parties (Mod 1.3) - Correct answer The statute requires that the SBC must be presented in a uniform format, utilize terminology understandable by the average plan participant, not exceed four pages in length and not include print smaller than 12-point font. While the health care reform law called for a four-page summary, the proposed regulations interpret the four-page limitation as four double-sided pages. This will give employers additional flexibility in providing the required information. The SBC must be provided as a standalone document. It must be presented in a culturally and linguistically appropriate manner. In general, the rules provide that, in specified counties of the US, plans and insurers must provide interpretive services. List the problems or penalties a plan sponsor might incur if they do not provide SPDs or SMMs as required (Mod 1.4) - Correct answer (a) A plan sponsor may be charged a penalty per day if it does not provide a plan participant with an SPD or SMM within 30 days of an individual's request. (b) Many courts look to the SPD and other plan descriptive material as important evidence of the benefits employees have been promised by the employer. For this reason, a clearly worded SPD is an important line of defense for employers in benefit disputes.
(c) The plan may be forced to provide benefits described in any other written documents describing the plan. (d) Participants and beneficiaries may bring a civil action in federal district court to enforce any provision of ERISA. (e) Criminal penalties may be imposed against any individual or company that willfully violates any ERISA reporting and disclosure requirements. (f) Failure to distribute SPDs or SMMs could be used against the plan sponsor, in actions brought by the gov't or plan participants and beneficiaries, to argue that the sponsor has engaged in a pattern of noncompliance with or violations of ERISA. (A pattern of noncompliance usually would cause DOL or the court to be less sympathetic to any arguments the plan sponsor may use.) In certain situations it might give the government impetus to initiate an audit of the sponsor's benefit programs in order to look for other ERISA violations. Briefly describe the SAR (Mod 1.4) - Correct answer SAR = Summary Annual Report An SAR is considered a plan disclosure requirement under ERISA. An SAR is a summary of certain information contained in a plan's Form 5500 Annual Report/Return, along with notification to participants of their rights under ERISA to receive additional information. ERISA requires that an SAR be given to each participant, including former employees who are still covered by a plan (for example, COBRA participants or retirees with plan coverage), in an ERISA welfare benefit plan. It is not necessary to file an SAR with DOL, because the SAR contains information already reported to DOL on the Form 5500. An SAR does not have to be provided if the plan is a totally unfunded welfare plan under which benefits are paid solely from the general assets of the employer or employee organization maintaining the plan. Describe the general types of information that must be maintained for an ERISA welfare benefit plan and the record retention requirement for these documents (Mod 1.4) - Correct answer Employers are required to keep sufficiently detailed information and data necessary to verify, explain, clarify or check on documents for accuracy and completeness, including vouchers, worksheets, receipts and applicable resolutions. Records must be maintained for six years for ERISA purposes, but other laws may require record retention for longer periods. ERISA stipulates that records be maintained for at least six years from the date the plan's associated Form 5500 is filed; however, because of filing extensions, practitioners recommend retaining records for eight years after the end of the applicable plan year.
What requirements must be met for ER contributions to be exempted from FICA and FUTA taxation (Mod 2.1) - Correct answer Exempted if a plan exists such that any one of the following requirements is met: (a) The plan is in writing and copies of the plan details are made available to employees either in print (e.g., in a booklet, pamphlet or other periodical) or electronically by e-mail. (b) The plan is referred to in an employment contract. (c) The employer can document that employees contribute to the plan. (d) Employer contributions are kept in a separate account from the employer's salary account. (e) The employer is required to make the contributions. In addition, the plan must benefit employees and their dependents for the tax exclusion to apply. Explain the tax treatment of health benefits offered by ERs to EE's same-sex spouses and their eligible dependents (Mod 2.2) - Correct answer The value of health insurance benefits offered by employers to employees' same-sex spouses and their eligible dependents is not subject to federal income or FICA tax withholding and, in addition, employers are permitted to offer this benefit on a pretax basis. Legally married same-sex couples must be treated as spouses, regardless of their state of residence or state of celebration (state where marriage was performed). Discuss the regulations issued in 2016 by the IRS that codified a nationally uniform rule regarding the tax treatment of benefits provided to individuals in a same-sex marriage (Mod 2.2) - Correct answer The 2016 IRS final regulations define the terms spouse, husband and wife in a gender-neutral way, for all federal tax purposes, to mean an individual lawfully married to another individual; the phrase husband and wife means two individuals lawfully married to each other. According to these regulations, if a couple is married in a state, territory or possession that recognizes same-sex marriage, the marriage is legal for all federal tax purposes regardless of where the couple lives. Marriages performed in a foreign country are recognized as valid in the United States for all federal tax purposes if at least one state, territory or possession recognizes the marriage as valid. This requirement is easily met because of the 2015 Supreme Court decision mandating that all states have to recognize same sex marriage. List the benefits that an ER may provide to an EE's same-sex spouse tax-free under federal law (Mod 2.2) - Correct answer (a) Health benefits (b) Qualified tuition reduction (c) Meals and lodging provided as a condition of employment (d) Dependent care benefits
(e) No-additional-cost services (f) Qualified employee discounts (g) Working condition fringe benefits (h) Qualified transportation fringe benefits (i) De minimis fringe benefits (j) Qualified moving expenses (k) Qualified retirement planning services (l) Access to on-premises gyms and other athletic facilities. Under federal law, how is the value of all benefits provided to an employee's same-sex civil union partner or domestic partner treated? (Mod 2.2) - Correct answer Under federal law, the value of all benefits provided to an employee's same-sex domestic partner or a same-sex civil union partner under applicable state law (or provided to the partner's children) is not exempt from FIT unless the person is a "dependent" as defined in the IRC. (That is, if benefits are provided to a non-dependent partner in a same-sex civil union or domestic partnership, FIT are withheld, and they are based on the fair market value (FMV) of the benefits. In taxation terms, FMV is referred to as imputed income.) Explain the nondiscrimination requirements that the Patient Protection and Affordable Care Act (ACA) enacted for health insurance plans and its current enforcement status (Mod 2.3) - Correct answer Prior to ACA, employers could structure health insurance plans offered through a third party insurance company to favor highly compensated employees (HCEs) without jeopardizing the tax exclusion for employer contributions and reimbursements. ACA changed the rules to require such plans to meet the same nondiscrimination requirements that self-insured plans must meet in order to retain tax-favored status. However, IRS has said that it will not require employers to comply with the new nondiscrimination provisions or enforce the penalties until it issues regulations or administrative guidance on the new requirements. Candidate Note: In January 2017 President Trump signed an executive order (EO) giving the Dept of Health and Human Services and "other executive departments and agencies" the authority and discretion to roll back certain aspects of ACA. As of this writing, because of the EO, the IRS is easing off the enforcement of some ACA provisions, however the law remains on the books and only Congress can repeal. What new requirements did ACA impose on the W2 Form, Wage and Tax Statement reporting? (Mod 2.3)
- Correct answer All employers that provide group health care coverage that is excludable from
eligible adult children (e.g., through the age of 26). HRAs are fully funded by the employer and cannot be offered to employees through a cafeteria plan or salary reduction. Employees are reimbursed on a pretax basis up to a set maximum amount for each period of coverage. Any amount not used by an employee by the end of the period is not lost and can be carried over to the next period at the employer's discretion. All of the following three conditions must be met for HRA coverage and reimbursements not to be included in an employee's gross income: a) the HRA only reimburses medical care expenses, as defined by IRC; b) every request for reimbursement is substantiated; c) the HRA does not reimburse medical expenses for a prior tax year, expenses incurred before the HRA plan became effective or expenses incurred before the EE enrolled In addition, while ER contributions to HRA are tax-free to the EE, ACA requires HRAs be integrated into a primary group's major medical plan and that the EE actually enroll in that primary group plan (exceptions for retiree only and one person stand alone HRAs). What is the criteria that a small ER must meet to qualify for a standalone HRA not linked to HDHP? (Mod 2.4) - Correct answer A small employer (i.e., an employer that does not have at least 50 full-time employees, including full-time equivalent employees) that does not offer its employees group major medical coverage may offer standalone qualified small employer health reimbursement arrangements (QSEHRAs) without running afoul of ACA market reform provisions. An employer's contribution into employees' QSEHRAs, however, is limited to specified amounts for employees depending on their marital status. These amounts are adjusted for inflation. Amounts exceeding those limits, and amounts that an employee does not use to purchase an individual policy that offers minimum essential coverage, are taxable to the employee. Medical Savings Accounts (MSAs) were made obsolete (although existing ones were grandfathered) by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) with the creation of HSAs. What are some of the unique features of HSAs? (Mod 2.4) - Correct answer HSAs are tax-exempt accounts used by employees to pay for medical expenses for themselves, their spouses and dependents. Employers can offer HSAs to employees who are enrolled in an HDHP. This plan has higher annual deductibles than a typical health insurance plan for self-only coverage and for family coverage. Annual out-of-pocket expenses are statutorily limited to certain amounts for both types of coverage. In addition, annual caps apply to the amount of contributions that may be made to an HSA for both types of coverage.
All of these statutory amounts are adjusted annually for inflation. Extra catch-up contributions can be made to an HSA by individuals aged 55 and older until they are eligible to enroll in Medicare. No contributions of any kind can be made once an individual enrolls in Medicare. Note: While Archer MSAs were replaced by HSAs in 2003, there are Medicare MSAs. They are uncommon but available with a HDHP through Medicare private health plans called Medicare Advantage Plans. How are contributions to HSAs taxed? (Mod 2.4) - Correct answer ERs and EEs can contribute up to HSAs annual limits. Contributions made by or for a covered individual up to the maximum annual limit are deductible by the individual. Employer contributions are excluded from the employee's gross income and are not taxable wages for purposes of withholding FIT, FICA taxes and FUTA taxes if, when the contributions are made, the employer reasonably believes it is excludable. Any employer contributions that exceed the annual limit or that are made for a noneligible individual are included in the employee's gross income. In addition, the HSA beneficiaries will pay a 6% excise tax on the excess contributions. HSAs and HDHPs can be offered as part of a cafeteria plan. How is pay for sick days associated with brief minor illnesses treated for tax purposes? (Mod 2.5) - Correct answer Sick pay is usually provided by ERs so that EEs do not lose wages when they are absent from work bc of brief, minor illness such as cold or flu. This type of sick pay is subject to FIT, FICA & FUTA taxes when paid. How are sick pay benefits for lengthier absences treated for tax purposes? (Mod 2.5) - Correct answer Employers may provide sick pay under a plan for lengthier absences, either as short term or long-term disability pay. These benefits are paid either by the employer or a third party such as an insurance company. Benefits that can be attributed to employee contributions made with after-tax dollars are not taxable income to the employee. Benefits that can be attributed to employee pretax contributions or employer contributions are included in the employee's taxable income and may be taxable for FIT, FICA taxes and FUTA taxes. If both the employer and employee contribute, the benefits are taxable only to the extent of the employer's contribution. The manner in which any required taxes are withheld while benefits are being paid out is dependent on several factors: Is the employer self-funding the benefits? Are the benefits administered by a third-party agent? Is the third-party payer an insurer that is not the employer's agent?
List benefits that are nonqualified, are taxable income to EE's and may not be offered as part of a cafeteria plan (Mod 2.6) - Correct answer (a) Scholarships and fellowships (b) Nontaxable fringe benefits under § (c) Educational assistance benefits (d) Meals and lodging provided for the employer's benefit (e) MSA contributions made by the employer (f) Certain HSAs (g) Certain long-term care insurance benefits (h) Certain group-term life insurance benefits (i) Tax-sheltered annuity plan elective deferrals under 403(b) A health FSA is an arrangement under which EE's may reduce their current cash compensation (ie make pre-tax contributions) and instead have that amount contributed to a plan for use in reimbursing them or their dependents for medical expenses. Describe the following features of a health FSA: a) Integration into group health plans b) Unused amount c) Contribution limits (Mod 2.6) - Correct answer a) Integration in group health: Under ACA, group plans must meet certain market reforms, including providing preventative services at no cost to an EE and their dependents. The market reforms, however, do not apply to a group health plan that offers excepted benefits. Health FSAs are group plans that must meet the market reform provisions, but they will be considered to provide only excepted benefits if the employer also makes available group coverage that is not limited to excepted benefits, and if the health FSA is structured so that the maximum benefit payable to any participant does not exceed two times the participant's salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. (b) Unused amounts (Carryover vs. grace period): An employee who has unused funds in their FSA by the end of the year may be eligible to carry over up to $500 of the unused amount from one plan year to the next. Under a prior IRS rule, amounts remaining in an FSA at the end of a plan year are forfeited by the employee at the end of the plan year (referred to as the use-it-or-lose-it rule) or 2.5 months after the end of the FSA plan year if the ER has adopted a grace period. The carryover option
provides an alternative to the grace period. A plan may not include both the carryover option and the grace period. The carryover option is not mandatory for employers. In order to adopt the option, the plan document must be amended to provide for the carryover provision and eliminate any grace period if one is provided. The carryover of up to $500 does not count against the statutory maximum contribution for the next plan year. (c) Contribution limits: There is a maximum amount, annually adjusted for inflation, that employees may contribute to a health FSA ($2,600 in 2017). The statutory limit does not apply to employer flex credits. Pretax contributions that erroneously exceed the plan year maximum must be treated as taxable wages Summarize the taxation requirements of a cafeteria plan (Mod 2.6) - Correct answer Employer contributions to a qualified cafeteria plan that relate to tax-free benefits chosen by an employee are not included in the employee's income and are not taxable for FIT, FICA taxes or FUTA taxes. If the employer contributions relate to taxable benefits, they are included in the employee's income and are subject to FIT, FICA taxes and FUTA taxes. Employee salary reduction contributions made on a pretax basis, whether made to purchase taxable or qualified benefits, are not included in the EE's income are are not FIT, FICA or FUTA taxable. What special rules apply to 401(k) plans and group term life insurance offered under a qualified cafeteria plan? (Mod 2.6) - Correct answer Special rules apply to 401(k) plans and group-term life insurance. Pretax §401(k) plan employer contributions under a qualified cafeteria plan are subject to FICA and FUTA taxes and must be reported on an employee's Form W-2 along with amounts withheld. Elective deferrals (contributions made on a pretax basis) are also reported on the Form W-2. In addition, cafeteria plans may offer employees more than $50,000 of group-term life insurance to an employee as a qualified benefit. (IRC §79 provides an exclusion for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of such policies does not exceed $50,000. The imputed cost of coverage in excess of $50,000 must be included in income, using the IRS Premium Table, and are subject to Social Security and Medicare taxes.) Contributions to a qualified cafeteria plan made with post tax dollars are included in the EE's income and are FIT, FICA an FUTA taxable, but the benefits purchased are not taxable.
Pretax elective deferrals to a §401(k) plan are included in an employee's compensation when determining the maximum contribution limit for the EE. Explain the taxability of the following types of retirement accounts: a) IRAs (Individual Retirement Accounts) b) Roth IRAs c) Simplified Employee Pension (SEP) d) Employee Stock Ownership Plan (ESOP) (Mod 2.7) - Correct answer (a) IRAs: Employers may offer employees the option to participate in an IRA in addition to a qualified retirement plan. Employer IRA contributions are included in the income of employees but they are not subject to FIT withholding up to the amount the employer reasonably believes employees will be able to deduct on their personal income tax returns. Income earned on contributions is not taxable until distributed to employees. Employer contributions are subject to FICA and FUTA taxes. (b) Roth IRAs: Roth IRAs differ from standard IRAs in that contributions are not deductible from employee income, and distributions are excluded from gross income if certain qualifications are met. Employees can contribute the maximum deductible amount for a standard IRA to a Roth IRA, excluding amounts contributed by the employee to other IRAs in the same year. In addition, the amount that can be contributed to a Roth IRA is phased out once the employee's adjusted gross income exceeds certain annual limits. Employees also can transfer amounts from their §401(k), §403(b) or §457(b) retirement accounts to a designated Roth account, provided the retirement plan has a qualified Roth contribution program. The amounts transferred are taxable at the time transferred and are treated as a qualified rollover contribution to the Roth account. (c) SEP plans: An SEP plan is an option for employers that do not have the financial resources to administer more complicated deferred compensation plans such as §401(k) plans. Employer contributions to a SEP, up to the annual limit, are not FIT, FICA or FUTA taxable, and any contributions over the limit are wages to employees. Employee elective deferral contributions are excluded from wages up to the deferral limit but are FICA and FUTA taxable. (d) ESOP:
ESOPs are defined contribution plans that give employees the chance to own shares of the employer's stock. Employer contributions to a qualified ESOP are not taxable wages and not FIT, FICA or FUTA taxable, provided they do not exceed 100% of the employee's annual compensation or the annual inflation-adjustment limit, whichever is less. What is the "Windsor" effect and what is its impact on plan documents? (Mod 3.1) - Correct answer Supreme Court ruling in US v Windsor extended federal tax and benefit rights to couples in a same sex marriage. The ruling means plan sponsors should review plan docs to ensure language is current and compliant. List 5 main ERISA reporting and disclosure requirements (Mod 3.1) - Correct answer 1) A written plan document
- A summary plan description
- A summary of material modification
- An annual financial report (Form 5500)
- A summary annual report -Qualified pension benefit plans are subject to additional disclosure & reporting requirements Describe the written plan document requirement and state the purpose of it (Mod 3.1) - Correct answer All plans subject to ERISA must be established & maintained pursuant to a written plan document that describes the benefits provided under the plan, names the individual(s) responsible for the operation of the plan and outlines the arrangements for funding and amending the plan. The purpose of the plan document is to set forth the rules and requirements governing the plan. The plan fiduciary is obligated to follow the terms and conditions of the plan, as long as the plan is compliant with the law. ERISA does not specifically define what should be included in a plan document. List the elements that would be prudent to include in a plan document (Mod 3.1) - Correct answer (a) The name(s) of the plan fiduciary(ies) (b) Policies and procedures relating to plan administration (c) Funding requirements (d) A description of how benefit payments will be made (e) Claims and appeals procedures (f) Plan amendment and termination authority and procedures (g) Method for distribution of plan assets upon plan termination (h) A statement that plan assets can be used to pay reasonable costs of plan administration
