Chapter 13 Retirement Savings and Deferred Compensation

1.
[LO 1, 2] How are defined benefit plans different from
defined contribution plans? How are they
similar?
2.
[LO 1] Describe how an employee’s benefit under a defined
benefit plan is computed.
3.
[LO 1, 2] What does it mean to vest in a defined
benefit or defined contribution plan?
4.
[LO 1, 2]
Compare and contrast the minimum vesting requirements for defined benefit plans
and defined contribution plans?
5.
[LO 1, 2] What are the nontax advantages and
disadvantages of defined benefit plans relative to defined contribution plans?
6.
[LO 1] Describe
the maximum annual benefit that taxpayers may receive under defined benefit
plans.
7.
[LO 1] Describe
the distribution or payout options available to taxpayers participating in
qualified defined benefit plans. How are
defined benefit plan distributions to recipients taxed?

8.
[LO 1, 2] Describe the minimum distribution
requirements for defined benefit plans.
Are these requirements typically an item of concern for taxpayers?
9.
[LO 1, 2]
Compare and contrast the employer’s responsibilities for providing a defined
benefit plan to employees relative to providing a defined contribution plan.

10. [LO
2] Describe how an employee’s benefit under a defined contribution plan is
determined.

11. [LO
2] Is there a limit to how much an employer and/or employee may contribute to
an employee’s defined contribution account(s) for the year? If so, describe the
limit.

12. [LO
2] Cami (age 52 and married) was recently let go as part of her employer’s
reduction in force program. Cami’s
annual AGI was usually around $50,000.
Shortly after Cami’s employment was terminated, her employer distributed
the balance of her employer-sponsored 401(k) account to her. What could Cami do to avoid being assessed
the 10 percent early distribution penalty?

13. [LO
2] When may employees begin to receive defined contribution plan distributions
without penalty?

14. [LO
2] Describe the circumstances under which distributions from defined contribution
plans are penalized. What are the
penalties?

15. [LO
2] {Research} Brady Corporation has a profit sharing plan that allocates 10
percent of all after-tax income to employees. The profit sharing is allocated
to individual employees based on relative employee compensation. The profit
sharing contributions vest to employees under a six-year graded plan. If an
employee terminates his or her employment before fully vesting, the plan
allocates the forfeited amounts among the remaining participants according to
their account balances. Is this
forfeiture allocation policy discriminatory, and will it cause the plan to lose
its qualified status? Use Rev. Rul. 81-10 to help formulate your answer.

16. [LO
2] What does it mean if an employer “matches” employee contributions to 401(k)
plans?

17. [LO
2] {Planning} What nontax factor(s) should an employee consider when deciding
whether and to what extent to participate in an employer’s 401(k) plan?

18. [LO
2] What are the differences between a traditional 401(k) and Roth 401(k) plan?

19. [LO
2] Can employers match employee contributions to Roth 401(k) plans? Explain.

20. [LO
2] Describe the annual limitation on employer and employee contributions to
traditional 401(k) and Roth 401(k) plans.

21. [LO
2, 3] When a company is limited by the tax laws in the amount it can contribute
to an employee’s 401(k) plan, what will it generally do to make the employee
whole? Is this likely an issue for
rank-and-file employees? Why or why not?

22. [LO
2] {Planning} From a tax perspective, how would a taxpayer determine whether
they should contribute to a traditional 401(k) or a Roth 401(k)?

23. [LO
2] Could a taxpayer contributing to a traditional 401(k) plan earn an after-tax
return greater than the before-tax
return? Explain.

24. [LO
2, 3] Explain the tax similarities
and differences between qualified defined contribution plans and nonqualified
deferred compensation plans from an employer’s
perspective.