401(k) & Defined Benefit Plans Flashcards

Which federal agency insures defined benefit pension benefits when a private-sector DB plan terminates with insufficient assets?

Answer: Pension Benefit Guaranty Corporation (PBGC)

The PBGC, a federal agency created by ERISA, insures defined benefit plan benefits up to statutory limits when an underfunded plan is terminated.

A 401(k) plan participant who leaves an employer with a vested account balance of $7,000 or less may be subject to what plan action?

Answer: Mandatory cashout or rollover to an IRA

Plans may force-cash out vested balances of $1,000 or less, and must roll over balances between $1,000 and $7,000 to an IRA if the participant does not direct otherwise.

What is the primary purpose of the 'minimum funding standard' established by ERISA for defined benefit plans?

Answer: To ensure employers contribute enough annually to fund promised benefits

ERISA's minimum funding standards require DB plan sponsors to make sufficient annual contributions so that promised benefits can be paid when they come due.

In a 401(k) plan, 'Roth' contributions differ from traditional pre-tax deferrals in which key way?

Answer: Roth contributions are made after-tax, and qualified withdrawals are tax-free

Designated Roth contributions are made with after-tax dollars, so qualified distributions—including earnings—are completely tax-free in retirement.

Which actuarial assumption most directly affects the present value of future defined benefit plan liabilities?

Answer: Discount rate (interest rate)

The discount rate has the most significant impact on DB liabilities because it determines how much future benefit payments are worth in today's dollars.

Under IRC Section 401(a)(9), defined benefit plans must generally begin required minimum distributions by what date?

Answer: April 1 of the year after the participant turns 73 (or retires, if later)

SECURE 2.0 raised the RMD starting age to 73, and for DB plans still working, distributions may be deferred until actual retirement.

What is a 'plan freeze' in the context of a defined benefit plan, and what does it typically mean for current employees?

Answer: No new benefit accruals occur for existing participants going forward, though prior accruals are preserved

A DB plan freeze halts future benefit accruals so existing participants keep their already-earned benefits but stop earning new ones, often while the employer shifts to a DC plan.