What is a Qualified Plan?

Retirement plans are meant for retirement, and should not be confused with estate or inheritance plans. Preparing a qualified retirement plan is an important undertaking, requiring an employer to take stock of corporate goals and corporate culture. There are several key elements that must be included in a qualified retirement plan.  

Written Document: 
The plan has to be in writing; with a formal and legal document that captures all aspects of the program.  The employer must operate in a manner consistent with the plan document or risk disqualification.  

Designed For Employees:
A qualified plan must be designed for the employees and maintain an exclusive benefit for participants.  It may not discriminate in favor of highly compensated employees.  

Minimums and Vesting:
Minimum coverage requirements must be defined so that enough people will benefit from the retirement plan (i.e., non-discrimination). Vesting describes the timeline whereby participants earn the right to 100% of the benefit. 

Age Requirements and Plan Limits:
The plan must define eligibility requirements.  There are minimum distribution rules and IRS limits on contributions.  The plan must define minimum age of participation and normal retirement age. 

Married Participants:
Special rules apply to married participants in some plans. To protect the rights of spouses to a benefit, plans must include a right to survivor clause.  The spouse’s signature is required to void this clause.  

Acquisitions and Mergers:
A qualified plan must protect participants’ benefits through acquisitions and mergers.  

Tax Benefits:
In a 401k plan, the maximum that both an employee and employer can contribute must be defined since both parties receive a tax benefit from the contributions. A plan must also allow a tax deferred roll-over if the participant leaves the company.  

Getting Help:
To meet the goal of an employer and the requirements of the IRS, it is critical to engage expert help.  Select an expert who will listen to you and draft a plan to meet your needs.  On-going service with a trusted professional will insure that the Plan retains its qualified status and is a successful tool for both employers and employees to prepare for a comfortable retirement.  

Jan Rexroth
Markley Actuarial