Accrued benefit, 80
Accumulation years, 192–193
ACP test. See Actual contribution percentage test
Active participants, 194–197
Actual contribution percentage (ACP) test, 48
Actual deferral percentage (ADP) test, 46
Actuarial cost method, 112
ADL. See Advanced determination letter
Administrative exemptions, 133
Adoption agreement, 68
ADP test. See Actual deferral percentage test
ADP 1.25 test, 47
ADP 2.0 test, 47
Adult daily living functions, 272
Adult day care, 271–272
Advanced determination letter (ADL), 150
Advance directives, 273–274
Affiliated service groups, 74–75
After-tax contributions, 87–88
Agency conflict, 178
Age-restricted housing, 264
Age-weighting, 85–86
Aggregation rules, 72–74
AIME. See Average index monthly earnings
Alternative minimum taxes (AMT), 182
AMT. See Alternative minimum taxes
Annuity certain, 301
Anticutback rule, 81
Arbitration, 168
Assisted living, 271
Assumptions
inflation, 256–257
investment, 257–259
life expectancy, 251–252
retirement age, 250–251
At risk plans, 113
Average benefits test, 70
Average index monthly earnings (AIME), 237
Backdoor Roth conversion, 210
Beneficiary IRA, 286
Beneficiary rollovers, 286
Beneficiary Roth IRA, 198–199
Benefit periods, 267
Benefit security, 171–172
BLS. See Bureau of Labor Statistics; U.S. Bureau of Labor Statistics
Bonus, 174
Break-in-service rule, 102
Brokerage window, 45
Brother-sister-controlled group, 73
Bureau of Labor Statistics (BLS), 4, 29, 224, 256
Cash balance (CB) plan, 21
Catastrophic coverage, 270
Catch-up contribution, 24
Centers for Disease Control, 251
COBRA. See Consolidated Omnibus Budget Reconciliation Act of 1985
COLA. See Cost of living adjustment
COLI. See Company-owned life insurance
Collateral benefit, 128
Collectibles, 208
Common trust fund, 117
Company-owned life insurance (COLI), 170–171
Compensation, 32, 81
Conflict mitigation, 128–129
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), 270–271
Constructive receipt rule, 163–164
Contribution limit test, 68
Controlled groups, 73
Cost basis, 107
Cost of living adjustment (COLA), 255
Coverage, eligibility, and participation rules
affiliated service groups, 74–75
aggregation rules, 72–74
“21-and-1” rule, 72
family attribution, 74–75
leased employees, 75–76
410(b) minimum coverage test, 68
planning opportunities, 71–72
401(a)(26) testing, 71
Crisis of financial unawareness
financial awareness, 4–5
nonqualified deferred compensation, 8
tax-advantaged plan attributes, 6–7
tax-advantaged plan, general requirements, 7–8
Cross testing, 84
Currently fully insured worker, 234
Cushion amount, 113
Death planning
incidental death benefit rule, 105–108
preretirement death planning, 104–105
Deceased participant, 290–291
Defense of Marriage Act (DOMA), 144
Deferred retirement, 100, 239–240
Defined benefit (DB) plan
vs. DC plan, 23–26
formulas, 32–34
funding, 112–114
in PPA, 14
selection reasons, 31
terminations, 151–152
Defined contribution (DC) plan
401(k), 23, 41–49
403(b), 61–62
vs. DB plan, 23–26
ESOP, 23, 50–53
funding, 115–116
MPPPs, 22
overview of, 22–23
in PPA, 14
PSRP, 23, 40–41
stock bonus plan, 23, 49–50
TB plan, 22
terminations, 150
Designing benefit offerings
age-weighting, 85–86
compensation, 81
cross testing, 84
integration with social security, 82–84
nondiscrimination requirements, 79–81
plan types, common choices for, 86–87
voluntary after-tax contributions, 87–88
Direct rollover, 200
Disability benefits, 108–109
Disability insured worker, 234
Discretionary authority, 126
Distress termination, 151
Distribution options. See also Retirement distribution planning
IRAs, 301–302
middle class, planning for, 302–304
optional forms, 300–301
qualified plan, 299–300
403(b)s, 301–302
sustainable withdrawal rates, 296–299
wealthy clients, planning for, 304–305
DOL. See U.S. Department of Labor
DOMA. See Defense of Marriage Act
Do-not-resuscitate order, 274
Double bonus, 174
Due diligence, 20–21
Early-career clients, 253
Early retirement, 99–100, 238–239
Earnings test, 240–241
Economic benefit rule, 162
Economic Growth and Tax Relief Reconciliation Act (EGTRRA), 37
EGTRRA. See Economic Growth and Tax Relief Reconciliation Act
Eligible plan, 173
Elimination period, 272
Employee census, 21
Employee plans compliance resolution system (EPCRS), 145
Employee Retirement Income Security Act (ERISA)
description, 11–12
post-trends, 13–14
in summary plan description, 141
Employee stock ownership programs (ESOPs), 50–53
Employee stock purchase plans (ESPP), 185–186
Employer-sponsored retirement plan, 224–225
Enrollment meetings, 140
EPCRS. See Employee plans compliance resolution system
Equity-based compensation
closely held business, 178–179
employee stock purchase plans, 185–186
incentive stock options, 182–185
nonqualified stock options, 180–182
overview of, 178
preliminary concerns, 179–180
special plan types, 186–188
ERISA. See Employee Retirement Income Security Act
ESOPs. See Employee stock ownership programs
ESPP. See Employee stock purchase plans
ETFs. See Exchange-traded funds
Excess contributions, handling, 202–203
Exchange-traded funds (ETFs), 45, 88
Exclusive benefit rule, 16, 128
Executive bonus life insurance, 174
Exemptions
administrative, 133
individual, 133
statutory, 133
Exercise price, 181
Expense method, 255
FAC. See Final average compensation
Fact-finding process, 20
FADEA. See Federal Age Discrimination in Employment Act
Fair market value (FMV), 181
Family attribution, 74–75
Federal Age Discrimination in Employment Act (FADEA), 100
Federal Insurance Contributions Act (FICA), 164–165, 232, 253
Federal Reserve Bank of St. Louis, 4
FICA. See Federal Insurance Contributions Act
Fiduciary bond, 135
Fiduciary responsibility, 116
collateral benefit, 128
conflict mitigation, 128–129
disclosures and requirements, 129–130
discretionary authority, 126
exclusive benefit rule, 128
exemptions, 133–134
fiduciary duty, 126–127
fiduciary-prohibited transactions, 132–134
limiting fiduciary liability, 134–135
participant-directed investing, 130–132
plan assets, 127
self-dealing, 132
standard of prudence, 128
third-party administrators, 126
Fifth Third Bancorp vs. John Dudenhoeffer, 53
Final average compensation (FAC), 32
Financial awareness, 4–5
Five-year rule, 202
Flat amount per year of service method, 34
Flat benefit method, 34
Flat percentage of earnings method, 34
FMV. See Fair market value
Forfeiture provisions, 166–168
415(b) benefit limit, 23
457(b) plan, 173
457(f) plan, 173
§457 plans, 172–173
401(a)(26) testing, 71
401(k), 23
401(k) compliance testing, 46–49
410(b) minimum coverage test, 68
410(b) testing
average benefits test, 70
percentage test, 69
ratio test, 69–70
403(b), 23, 61–62
Freezing a plan, 148
Full-time employees, 75
Full year of service, 72
Fully insured plans, 114–115
Fully insured worker, 234, 236
Funding
actuarial cost method, 112
at-risk plans, 113
common trust fund, 117
cushion amount, 113
DB plan, 112–114
DC plan, 115–116
fiduciary responsibility, 116
fully insured plans, 114–115
guaranteed insurance contract (GIC), 116
instruments, 116–118
irrevocable, 116
projected benefit obligation, 112
social security, 233–234
status plan, 112
target, 113
GIC. See Guaranteed insurance contract
Golden handcuffs, 165
Golden handshake, 165
Golden parachute, 165
Guaranteed insurance contract (GIC)
definition, 116
separate account, 121–122
Hardship, 41
Hardship withdrawal, 44
HCEs. See Highly compensated employees
Highly compensated employees (HCEs), 7, 41
Holistic view
drawbacks, 226–229
employer-sponsored plan, 224–225
female clients, 225–226
financial professionals, 221–222
retirement planning, 220–221
retirement planning process steps, 222–224
Home health care, 271
Housing issues
alternative choices, 265
overview of, 262–263
relocation issues, 263–264
100-1 rule, 106
ILIT. See Irrevocable life insurance trust
Immediate vesting, 72
Incentive stock options (ISO), 182–185
Incidental death benefit rule, 105–108
Indemnity policy, 272
Indirect rollover, 200
Individual exemptions, 133
Individual retirement accounts (IRAs)
active participants, 194–197
definition, 12
excess contributions, 202–203
funding instruments, 205–207
nonqualified deferred compensation, 8
opportunities, 208–210
overview of, 192–193
prohibited investments, 208–210
rollovers and Roth conversions, 200–202
Roth, 197–200
self-directed, 207–208
spousal, 194
traditional, 193–194
Individual retirement annuity, 206
Ineligible plan, 173
Inflation assumptions, 255–256
Informally funded, 169
In-kind distribution, 150
In-service withdrawals, 30
Installment payment, 301
Institute for Women’s Policy Research, 226
Integration level plans, 82–84
Intermediate care, 271
Internal Revenue Code §1042(3), 52
Internal Revenue Service (IRS), 42, 93, 106, 149, 163
Investment
acceptable level, 120
assumptions, 257–259
general considerations, 119–122
guidelines, policies, and objectives, 118–119
time horizon, 120
Involuntary cash-outs, 299
Involuntary termination, 17, 154
IRAs. See Individual retirement accounts
Irrevocable funding, 116
Irrevocable life insurance trust (ILIT), 304
Irrevocable trust, 171
IRS. See Internal Revenue Service
ISO. See Incentive stock options
Joint and survivor annuity (JSA), 300
JSA. See Joint and survivor annuity
KCR. See Keogh contribution rate
Keogh contribution rate (KCR), 27
Keogh plan, 26–27
Key employees, 59
Late-career clients, 252
Leased employees, 75–76
Life annuity, 33, 300
Life care community, 263
Life expectancy assumptions, 251–252
Limiting fiduciary liability, 134–135
Living will, 273
Long-term care (LTC) insurance, 271–273
Look back rule, 185
Medicare Advantage plan, 268
Medicare options, 267–270
Medigap policy, 269
Midcareer clients, 252–253
Money purchase pension plans (MPPPs), 22, 36–37
Moral hazard, 233
MPPPs. See Money purchase pension plans
Murphy’s Law, 255, 262–263
Net unrealized appreciation (NUA), 49, 286–287
NHCEs. See Nonhighly compensated employees
Nondiscrimination requirements, 79–81
Nonduplication rule, 164
Nonelective contribution, 48
Nonhighly compensated employees (NHCEs), 62, 69, 80
Nonqualified deferred compensation, 8
benefit security, 171–172
company-owned life insurance, 170–171
constructive receipt rule, 163–164
design considerations, 168–169
economic benefit rule, 162
executive bonus life insurance, 174
forfeiture provision, 166–168
funding issues, 169–170
golden incentives, 165
objectives, 165–166
§457 plans, 172–173
vs. qualified plans, 160–161
specific types of, 166
top-hat exemption, 172
wage-based taxes, 164–165
Nonqualified stock options (NQSO), 180–182
Nonqualifying Roth IRA distribution, 283–284
Nontax-advantaged savings, 6
Normal retirement age (NRA), 33, 98–99
Notice of intent to terminate, 151
NQSO. See Nonqualified stock options
NRA. See Normal retirement age
NUA. See Net unrealized appreciation
Offering period, 185
One year of service, 72, 80
Overshadowing concept, 82
Parent-subsidiary-controlled group, 73
Partial termination, 154
Participant-directed investing effects, 130–132
PBGC. See Pension Benefit Guaranty Corporation
PBO. See Projected benefit obligation
Pension Benefit Guaranty Corporation (PBGC), 12, 16–17, 142
Pension Protection Act (PPA), 14
Pension-type plan vs. profit-sharing-type plan, 30
Percentage test, 69
Personally liable fiduciaries, 134
Phantom stock, 186
Phaseout scenario, 196
PIA. See Primary insurance amount
Plan assets, 127
Plan installation
administration requirements, 142–143
common errors, 143–144
compliance issues, 144–145
new plan, 140–141
qualified domestic relations order, 143–144
summary plan description, 141
Plan loans
ERISA, 93
IRS, 93–94
overview of, 92–93
rules and administration, 93–95
Planning opportunities, 71–72
Plan terminations
alternatives, 148–149
commonly cited reasons, 147–148
DB plan, 151–152
DC plan, 150
distribution options, 152–153
limits on, 149–150
by operation of law, 154–155
reversion of excess plan assets, 152
POA. See Power of attorney
Power of attorney (POA), 274
PPA. See Pension Protection Act
Preretirement death planning, 104–105
Pretax savings, 87
Primary insurance amount (PIA), 237
Prior year testing, 47
Private letter ruling, 15
Profit-sharing retirement plan (PSRP), 23, 40–41
Projected benefit, 80
Projected benefit obligation (PBO), 112
Proposed regulation, 15
Prototype plan, 17
PSRP. See Profit-sharing retirement plan
QDI. See Qualified default investment
QDRO. See Qualified domestic relations order
QJSA. See Qualified joint and survivor annuity
QLAC. See Qualified longevity annuity contract
QPSA. See Qualified preretirement survivor annuity
Qualified default investment (QDI), 131
Qualified domestic relations order (QDRO), 143–144
Qualified joint and survivor annuity (QJSA), 104–105, 153, 226, 300
Qualified longevity annuity contract (QLAC), 292
Qualified plan
definition, 4
examples of, 4
vs. other plans, 5
Qualified plan distribution options, 299–300
Qualified preretirement survivor annuity (QPSA), 104–105
Qualified replacement plan, 152
Qualified termination administrator, 155
Rabbi trust, 171
Ratio test, 69
RBD. See Required beginning date
Reallocation of forfeiture, 97
Recharacterization, 203
Regulation
definition, 15
proposed, 15
Replacement ratio approach, 253
Required beginning date (RBD), 288
Required minimum distribution (RMD), 287–290
Restricted stock, 187
Retirement age assumptions, 250–251
Retirement distribution planning
beneficiary rollovers, 286
cost basis, recovery of, 281–283
for deceased participant, 290–291
general tax treatment, 278–279
net unrealized appreciation rule, 286–287
other distribution issues, 291–292
qualifying Roth IRA distribution, 283–284
required minimum distribution, 287–2908
rollovers, 284–285
72(t) special exception, 280–281
Retirement income approach, 253–255
Retirement landscape
Employee Retirement Income Security Act, 11–12
Pension Protection Act, 14
post-ERISA trends, 13–14
Retirement plan design
deferred retirement, 100
early retirement, 99–100
normal retirement age, 98–99
Retirement planning
opportunities, 71–72
startup costs tax credit, 62–63
Retirement standard of living, 252–253
Revenue rulings, 15
Reverse mortgage, 265
RMD. See Required minimum distribution
Rollovers, 284–285
Roth IRAs, 192, 197–199
backdoor Roth conversion, 210
conversions, 200, 213–214
vs. deductible traditional IRA contributions, 211–213
vs. nondeductible traditional IRA contributions, 210–211
stepped-up basis, 211
Safe harbor contribution, 48
Safe harbor plan, 81
Salary reduction plans, 166
Sale-leaseback agreement, 265
Savings incentive match plan for employees (SIMPLE) plan, 57–59
SEC. See Securities and Exchange Commission
Secular trust, 171
Securities and Exchange Commission (SEC), 112, 180
Self-dealing, 132, 208
Self-directed IRAs,207–208
Separate account GIC, 121–122
Series of substantially equal payments, 50, 279
SERP. See Supplemental executive retirement plan
72(t) distribution, 279
72(t) penalty, 278
72(t) special exception, 280–281
Simplified employee pension (SEP) plan, 55–57, 76
Single premium annuity contract (SPAC), 153
Skilled nursing care, 271
Small businesses and nonprofits
403(b) plan, 61–62
SEP plan, 55–57
SIMPLE plan, 57–58
top-heavy rules, 59–60
SMM. See Summary of material modifications
Social security
actual benefits, 237–238
deferred retirement, 239–240
early retirement, 238–239
earnings test, 240–241
funding, 233–234
inherent importance, 231–233
initial benefit issues, 234–236
integration with, 82–84
supplemental security income, 245–246
survivor benefits, 236–237
taxation benefits, 241–243
taxpayer benefits, 243–245
Social Security Administration (SSA), 82, 232
Social Security tax, 82
solo-401(k), 46
SPAC. See Single premium annuity contract
SPD. See Summary plan description
Spousal IRA, 194
SSA. See Social Security Administration
SSI. See Supplemental security income
Stable value fund, 121
Standard of prudence, 128
Standard termination, 151
Statutory exemptions, 133
Stepped up basis, 211, 287
Stock bonus plan, 23, 49–50
Straight DB plan, 21
Strike price, 181–182
Subsidized benefits, 301
Substantial risk of forfeiture, 162
Summary of material modifications (SMM), 142
Summary plan description (SPD), 141
Supplemental executive retirement plan (SERP), 166
Supplemental security income (SSI), 245–246
Sustainable withdrawal rates, 296–299
Target benefit (TB) plan, 35–36
Tax-advantaged plan
attributes of, 6–7
general requirements of, 7–8
tax-advantaged savings vs. nontax-advantaged savings, 6
Taxation benefits, 241–243
Tax deferred, 192
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 59
Tax-free inside buildup, 170
Taxpayer benefits, 243–245
TEFRA. See Tax Equity and Fiscal Responsibility Act of 1982
10-year certain and continuous, 33
Third-party administrators (TPAs), 126
30,000-foot view, 3–5
Time horizon, 120
Top-hat exemption, 172
Top-heavy defined benefit plan, 60
TPAs. See Third-party administrators
Traditional IRAs, 193–194
Trigger event, 283
Trust agreement, 171
“21-and-1” rule, 72
UBIT. See Unrelated business income tax
Unique payback option, 244
Unit benefit formula, 32
Unrecognition of gains, 52
Unrelated business income tax (UBIT), 120–121
U.S. Bureau of Labor Statistics (BLS), 4, 224, 256
U.S. Census Bureau, 227, 251, 302
U.S. Department of Labor (DOL), 12, 129, 145, 155
Vesting
definition, 7, 95
general considerations, 97–98
required schedules, 95–97
Voluntary after-tax contributions, 87–88
Voluntary termination, 17
Wage-based taxes, 164–165
Wealthy clients, planning for, 210–211