Plan Selection — Pension and Profit-Sharing Plans (Portfolio 350)

Tax Management Portfolio, Plan Selection — Pension and Profit-Sharing Plans, No. 350, deals with the design, cost, and planning considerations involved in the decision to adopt a qualified pension or profit-sharing plan.

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Tax Management Portfolio, Plan Selection — Pension and Profit-Sharing Plans, No. 350, deals with the design, cost, and planning considerations involved in the decision to adopt a qualified pension or profit-sharing plan. Other retirement-type vehicles, including nonqualified deferred compensation arrangements, SEPs, IRAs, and cash-or-deferred arrangements, are also examined.


Stanley N. Bergman

Stanley N. Bergman, A.B., cum laude, Dartmouth College; J.D., University of Michigan; M.B.A., Amos Tuck School of Business Administration, Dartmouth College; member, Connecticut Bar Association (Section of Taxation), American Bar Association (Section of Taxation).

Table of Contents

Detailed Analysis

I. Introduction: The Problem of Plan Selection

A. General

B. Qualified Plans

1. In General

2. Taxation to Employees

3. Deductions by Employer

C. Nonqualified Plans

1. Funded Plans

2. Unfunded Plans

3. Deductions by Employer

II. Classification of Plans

A. Pension Plans

B. Profit-Sharing Plans

C. Stock Bonus Plans

D. The Pension-Profit-Sharing Controversy

E. Nonqualified Plans

III. Section 401(a) Plans: Types and Attributes of Benefit Formulas

A. Basic Qualification Requirements

1. Section 401(a)(4): The General Nondiscrimination Rule

2. Top-Heavy Rules for § 401(a) Plans

3. The Requirement that Benefits Under a Pension Plan Be "Definitely Determinable"

4. Other Requirements

B. Pension and Profit-Sharing Plans: Criteria Governing Plan Selection

C. Types of Pension and Profit–Sharing Plans

1. Profit-Sharing Plans

a. The Contribution Formula

b. The Formula for Allocating Contributions to Participants' Accounts

c. The Formula for Reallocating Forfeitures

d. Distribution of Benefits

2. Pension Plans

a. Money Purchase Plans

b. Target Benefit Plans

c. Defined Benefit Plans

d. Actuarial Certifications

e. Unit Benefit Pension Plans

f. Variable Defined Benefit Plans

g. Past Service Liability

h. Forfeitures

3. Benefit and Contribution Limitations

a. General Rule

b. Defined Contribution Plans

c. Defined Benefit Plans

d. Dual Participants in Defined Contribution and Defined Benefit Plans

e. Top-Heavy Plan Rules

4. Individual Retirement Arrangements

5. SIMPLE Plans

D. Simplified Employee Pensions

E. Section 401(k) Cash or Deferred Arrangements (CODAs)

IV. Section 401(a) Plans: Coverage and Integration - Certain Employees

A. Purposes of Exclusion

B. Minimum Age and Service Conditions

C. The Coverage Test

1. Minimum Coverage Requirements

2. 50/40 Minimum Coverage Test

D. Social Security Integration

E. Salaried Only Plans

F. Multiple Plans: Pension or Profit-sharing

G. Nonqualified Deferred Compensation Arrangements

1. In General

2. Advantages Compared to Qualified Plans

3. Disadvantages Compared to Qualified Plans

H. Selection of Formula and Coverage

1. Employer's Goals

2. Considerations

3. Administrative Considerations

I. Vesting Requirements

1. Minimum Vesting Requirements

a. Non-Top-Heavy Plans

b. Top-Heavy Plans

2. Crediting Service

J. Defined Benefit Plans: Benefit Accrual Requirements

1. In General

2. Employer Contributions - Section 411(b) Benefit Accrual Rules

3. Employee Contributions

K. Form of Normal Retirement Benefit

L. Income Taxation of Benefits

1. Qualifying Lump Sum Distributions

2. Taxfree Rollovers

M. Employee Contributions

1. In General

2. Withdrawal of Employee Contributions

N. Selection of the Funding Medium

1. Trust

2. Life Insurance

a. Group Annuity Plans

b. Group Permanent Plans

c. Deposit Administration Plans

d. Individual Policy Plans

e. Variable Annuity Plans

3. Other Investments

a. In General

b. Employer Real Property and Securities

4. Overall Considerations

5. Prohibited Transactions

O. Multiple Employer Plans

P. Master and Prototype Plans

Working Papers

Working Papers

Table of Worksheets

Other Resources

Worksheet 1 ABC Company Money Purchase Pension Plan.

Worksheet 2 Joint Committee on Taxation Staff Description (JCS-9-90) of Present-Law Tax Rules Relating to Qualified Pension Plans, Subject of Hearing Before Senate Finance Subcommittee on Private Retirement Plans and Oversight of the Internal Revenue Service, March 23, 1990





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