Module 1 - An Overview of Retirement Planning.docx

The defined benefit plans on the other hand must

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extra vesting requirement if they are deemed to be top-heavy. The defined benefit plans, on the other hand, must adopt a vesting schedule at least as generous as a DC plan. A top-heavy DB plan must offer a contribution scheme that is at least as generous as 2% for each year of service with a service cap of 10 years. This means that the minimum benefit in a top-heavy defined benefit plan is 20% of FAC. In a top-heavy defined contribution plan, the contribution scheme must be at least as generous as 3% of compensation unless the percentage for key employees is less. There is a special contribution scheme if the employer offers both a DB and a DC plan for their employees. If the employer chooses to satisfy the top-heavy rules with the DB plan, then all is the same, but if they choose to satisfy the rules with the DC plan, then the minimum contribution is now increased to 5% of compensation. Typically, it is small companies that have top-heavy issues. It would be very difficult for a large company, like General Electric, to have 60% of the benefits reserved for key employees when the number of non- key employees greatly outnumbers the volume of key ones. You will notice that much of the compliance testing is aimed at preventing small employer abuses. Specifically, top-heavy rules apply to SEPs and SIMPLEs.
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  • Spring '14
  • VOSS,JAMESA
  • ERISA

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