This chapter gives an overview of IRC and regulatory requirements to be a qualified plan. It begins with a discussion of eligibility and coverage, including the definition of highly-compensated for employee benefit purposes. | Qualification Requirements every planner should have a basic understanding of qualification rules complex Internal Revenue Code and regulatory requirements must be met in order to obtain the tax advantages a summary of the rules is provided Copyright 2009, The National Underwriter Company Qualification Requirements eligibility and coverage nondiscrimination in benefits and contributions vesting funding (including deduction limits) limitations on Benefits and Contributions top-heavy requirements Copyright 2009, The National Underwriter Company Eligibility and Coverage: Must cover a broad group of employees Two types of rules satisfied “age and service” or waiting period requirements “overall coverage” and “participation” requirements Copyright 2009, The National Underwriter Company “Age and Service” or Waiting Period Requirements: used to avoid burdening the plan with employees who terminate after short periods of service cannot require more than one year of service for eligibility any employee who has attained the age of 21 must be allowed to enter plan after meeting one year of service requirement alternative two-year waiting period available if plan provides immediate 100% vesting Copyright 2009, The National Underwriter Company “Overall Coverage” Tests Ratio percentage test: Plan must cover a percentage of nonhighly compensated employees that is at least 70% of the percentage of highly compensated employees Average benefit test: Plan must benefit a nondiscriminatory classification of employees and the average benefit, as a percentage of compensation, for all nonhighly compensated employees of the employer must be at least 70% of that for highly compensated employees Copyright 2009, The National Underwriter Company “Participation” Test a defined benefit plan must also cover on each day of the plan year the lesser of: 50 employees of the employer The greater of 40% or more of all employees of the employer Two employees (or, if only one . | Qualification Requirements every planner should have a basic understanding of qualification rules complex Internal Revenue Code and regulatory requirements must be met in order to obtain the tax advantages a summary of the rules is provided Copyright 2009, The National Underwriter Company Qualification Requirements eligibility and coverage nondiscrimination in benefits and contributions vesting funding (including deduction limits) limitations on Benefits and Contributions top-heavy requirements Copyright 2009, The National Underwriter Company Eligibility and Coverage: Must cover a broad group of employees Two types of rules satisfied “age and service” or waiting period requirements “overall coverage” and “participation” requirements Copyright 2009, The National Underwriter Company “Age and Service” or Waiting Period Requirements: used to avoid burdening the plan with employees who terminate after short periods of service cannot require more than one year of service for .
