401(k) & Defined Benefit Plans Flashcards

Which of the following best describes a 'hybrid' retirement plan?

Answer: A plan that incorporates features of both defined benefit and defined contribution plans

Hybrid plans, such as cash balance and pension equity plans, blend the guaranteed benefit feature of DB plans with the individual account transparency of DC plans.

An employer wants to encourage longer employee tenure through its 401(k) match. Which vesting schedule best accomplishes this goal?

Answer: 6-year graded vesting

A 6-year graded schedule gives partial vesting each year over the maximum allowable period, providing the longest golden-handcuff effect permitted under ERISA.

A participant in a defined benefit plan who leaves after meeting the vesting requirement but before retirement age has what type of benefit?

Answer: A deferred vested benefit payable at normal retirement age

A vested terminated participant retains the right to receive their accrued benefit starting at the plan's normal retirement age, known as a deferred vested benefit.

Under the SECURE 2.0 Act of 2022, which provision helps small employers offset the cost of establishing a new 401(k) plan?

Answer: Enhanced startup tax credits covering up to 100% of plan startup costs for small employers

SECURE 2.0 increased the small-employer plan startup credit to 100% of costs (up from 50%) for employers with up to 50 employees, capped at $5,000 per year for 3 years.

Which of the following is an advantage of a defined benefit plan from an employee retention and recruitment perspective?

Answer: The guaranteed lifetime income stream reduces employees' longevity risk

Defined benefit plans provide predictable lifetime income, which protects employees from outliving their savings—a compelling benefit for long-tenure recruitment and retention.

A 401(k) plan document must be restated every six years under what IRS program?

Answer: Pre-approved plan restatement cycle

The IRS requires pre-approved 401(k) plan documents to be restated every six years in a staggered cycle to incorporate regulatory changes and maintain qualified status.

Which of the following describes the '415 limit' as it applies to defined benefit plans?

Answer: The maximum annual benefit payable, which in 2024 is $275,000 or 100% of average compensation

IRC Section 415(b) caps the annual benefit from a DB plan at the lesser of $275,000 (2024 limit, indexed for inflation) or 100% of the participant's average compensation.