Publication 560 - Retirement Plans For Small Business

trust described in section 401(a) or a custodial

If there is only one employee, the plan must

Early retirement. Your plan can provide for

account described in section 401(f) to protect it

benefit that employee.

payment of retirement benefits before the nor-

under the statute of limitations provided in sec-

mal retirement age. If your plan offers an early

Contributions or benefits must not discrimi-

tion 6501(a). The filing of a completed Schedule

retirement benefit, a participant who separates

nate. Under the plan, contributions or benefits

P (Form 5500), Annual Return of Fiduciary of

from service before satisfying the early retire-

to be provided must not discriminate in favor of

Employee Benefit Trust, by the fiduciary satis-

ment age requirement is entitled to that benefit if

highly compensated employees.

fies the annual filing requirement under section

he or she meets both the following require-

6033(a) for the trust or custodial account cre-

ments.

Contribution and benefit limits must not be

ated as part of a qualified plan. This filing starts

•

more than certain limits. Your plan must not

Satisfies the service requirement for the

the running of the 3-year limitation period that

provide for contributions or benefits that are

early retirement benefit.

applies to the trust or custodial account. For this

more than certain limits. The limits apply to the

protection, the trust or custodial account must

•

Separates from service with a nonforfeit-

annual contributions and other additions to the

qualify under section 401(a) and be exempt from

able right to an accrued benefit. The bene-

account of a participant in a defined contribution

tax under section 501(a). The fiduciary should

fit, which may be actuarially reduced, is

plan and to the annual benefit payable to a

file, under section 6033(a), a Schedule P as an

payable when the early retirement age re-

participant in a defined benefit plan. These limits

attachment to Form 5500 or Form 5500 – EZ for

quirement is met.

were discussed earlier under Contributions.

the plan year in which the trust year ends. The

fiduciary cannot file Schedule P separately. See

Minimum vesting standard must be met.

Survivor benefits. Defined benefit and cer-

the Schedule P instructions for more informa-

Your plan must satisfy certain requirements re-

tain money purchase pension plans must pro-

tion.

garding when benefits vest. A benefit is vested

vide automatic survivor benefits in both the

(you have a fixed right to it) when it becomes

following forms.

Form 5310. If you terminate your plan and are

nonforfeitable. A benefit is nonforfeitable if it

the plan sponsor or plan administrator, you can

•

cannot be lost upon the happening, or failure to

A qualified joint and survivor annuity for a

file Form 5310, Application for Determination for

happen, of any event.

vested participant who does not die before

Terminating Plan. Your application must be ac-

the annuity starting date.

companied by the appropriate user fee and

Participation. In general an employee must

•

Form 8717, User Fee for Employee Plan Deter-

A qualified pre-retirement survivor annuity

be allowed to participate in your plan if he or she

mination Letter Request.

for a vested participant who dies before

meets both the following requirements.

the annuity starting date and who has a

•

Has reached age 21.

More information. For more information

surviving spouse.

•

about reporting requirements, see the forms and

Has at least 1 year of service (2 years if

their instructions.

The automatic survivor benefit also applies to

the plan is not a 401(k) plan and provides

any participant under a profit-sharing plan un-

that after not more than 2 years of service

less all the following conditions are met.

the employee has a nonforfeitable right to

all his or her accrued benefit).

•

Qualification Rules

The participant does not choose benefits

in the form of a life annuity.

A plan cannot exclude an employee

•

To qualify for the tax benefits available to quali-

The plan pays the full vested account bal-

because he or she has reached a

fied plans, a plan must meet certain require-

ance to the participant’s surviving spouse

specified age.

CAUTION

ments (qualification rules) of the tax law.

(or other beneficiary if the surviving

Generally, unless you write your own plan, the

spouse consents or if there is no surviving

financial institution that provided your plan will

Leased employee. A leased employee, de-

spouse) if the participant dies.

take the continuing responsibility for meeting

fined in chapter 1, who performs services for you

•

The plan is not a direct or indirect trans-

qualification rules that are later changed. The

(recipient of the services) is treated as your

feree of a plan that must provide auto-

following is a brief overview of important qualifi-

employee for certain plan qualification rules.

matic survivor benefits.

cation rules that generally have not yet been

These rules include those in all the following

discussed. It is not intended to be all-inclusive.

areas.

Loan secured by benefits. If survivor ben-

See Setting Up a Qualified Plan, earlier.

•

Nondiscrimination in coverage, contribu-

efits are required for a spouse under a plan, he

Generally, the following qualification

tions, and benefits.

or she must consent to a loan that uses as

TIP

rules also apply to a SIMPLE 401(k)

•

security the accrued benefits in the plan.

Minimum age and service requirements.

retirement plan. A SIMPLE 401(k) plan

Waiver of survivor benefits. Each plan

•

is, however, not subject to the top-heavy plan

Vesting.

participant may be permitted to waive the joint

rules and nondiscrimination rules if the plan sat-

•

Limits on contributions and benefits.

and survivor annuity or the pre-retirement survi-

isfies the provisions discussed in chapter 3

•

vor annuity (or both), but only if the participant

under SIMPLE 401(k) Plan.

Top-heavy plan requirements.

has the written consent of the spouse. The plan

Contributions or benefits provided by the leasing

also must allow the participant to withdraw the

Plan assets must not be diverted. Your plan

organization for services performed for you are

waiver. The spouse’s consent must be wit-

must make it impossible for its assets to be used

treated as provided by you.

nessed by a plan representative or notary pub-

for, or diverted to, purposes other than the bene-

lic.

fit of employees and their beneficiaries. As a

Benefit payment must begin when required.

Waiver of 30-day waiting period before an-

general rule, the assets cannot be diverted to

Your plan must provide that, unless the partici-

nuity starting date.

A plan may permit a

the employer.

pant chooses otherwise, the payment of benefits

participant to waive (with spousal consent) the

to the participant must begin within 60 days after

30-day minimum waiting period after a written

the close of the latest of the following periods.

Minimum coverage requirement must be

explanation of the terms and conditions of a joint

met. To be a qualified plan, a defined benefit

•

The plan year in which the participant

and survivor annuity is provided to each partici-

plan must benefit at least the lesser of the follow-

reaches the earlier of age 65 or the normal

pant.

ing.

retirement age specified in the plan.

The waiver is allowed only if the distribution

•

1) 50 employees.

The plan year in which the 10th anniver-

begins more than 7 days after the written expla-

sary of the year in which the participant

nation is provided.

2) The greater of:

began participating in the plan occurs.

Involuntary cash-out of benefits not more

a) 40% of all employees, or

•

The plan year in which the participant sep-

than dollar limit. A plan may provide for the

b) Two employees.

arates from service.

immediate distribution of the participant’s bene-

Page 20

Chapter 4 Qualified Plans

Publication 560 - Retirement Plans For Small Business - 2001 Page 20

Related Articles

Related forms

Related Categories