CPM Retirement Plans & 401(k) Administration Flashcards

Which law governs the minimum standards for most voluntarily established retirement plans in private industry?

Answer: ERISA

ERISA (Employee Retirement Income Security Act of 1974) sets minimum standards for pension and benefit plans in private industry.

What is a Required Minimum Distribution (RMD)?

Answer: The minimum withdrawal a participant must take from a retirement account starting at a certain age

An RMD is the minimum amount the IRS requires retirement account owners to withdraw annually, beginning at age 73 under SECURE 2.0.

How is a 401(k) hardship withdrawal different from a 401(k) loan?

Answer: A hardship withdrawal is not repaid and is generally taxable; a loan is repaid with interest

A hardship withdrawal permanently reduces the account balance and is taxable income, while a loan is repaid with interest and not immediately taxable.

What is the ADP test in 401(k) plan administration?

Answer: Actual Deferral Percentage test — a nondiscrimination test comparing HCE and NHCE deferral rates

The ADP (Actual Deferral Percentage) test ensures that highly compensated employee deferral rates do not exceed allowable limits relative to non-highly compensated employees.

When must employee 401(k) deferrals be deposited into the plan trust?

Answer: As soon as administratively feasible, but no later than the 7th business day for small plans or 15 business days for large plans under DOL safe harbor

The DOL requires deferrals to be deposited as soon as reasonably possible; the safe harbor is 7 business days for small plans and no later than 15 business days for larger plans.

Which form is used to report distributions from a 401(k) plan to a participant or beneficiary?

Answer: Form 1099-R

Form 1099-R is issued to report distributions from retirement plans, IRAs, and annuities.