3714 / What are the qualification requirements that apply to various types of qualified retirement plans?

Editor’s Note: Self-audits for retirement plan sponsors have become even more important now that the Inflation Reduction Act has earmarked an extra $80 billion in IRS funding dollars—much of which is expected to be earmarked for enforcement. Many failures can be corrected under the EPCRS before the IRS gets involved in a more extensive audit. Qualified plan sponsors should ensure that they have adopted all amendments required under recent legislation, including the SECURE Act and 2020 CARES Act. Sponsors should also ensure that their plans are being properly operated in accordance with these new amendments and rules (so, if the plan adopted expanded loan provisions, the plan should check to ensure that it’s being operated in accordance with those amendments--noting that the deadlines for some amendments have been delayed). Plans should also ensure that all elective deferrals are being deposited on time and that all documents are filed on time (including Forms 5500). They should also check to ensure their plans are being operated in accordance with the RMD rules.

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Planning Point: Beginning January 1, 2023, employers will only be required to count plan participants with account balances when determining whether they cross the 100-participant threshold for Form 5500 filing requirements.  This new rule will allow many plans to avoid the expense of preparing and filing audited financial statements with their Forms 5500.  Prior to 2023, plans were required to file audited financial statements with their Forms 5500 if at least 100 people were eligible to participate in the plan, regardless of whether those participants actually contributed to the plan.

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Although qualification requirements ( Q 3838 to Q 3935) and deduction limits ( Q 3937 to Q 3943) generally affect all qualified plans, there are additional qualification requirements and deduction limits that are specific to certain types of plans.

As a general rule, qualification requirements can be divided between: (1) defined benefit plans ( Q 3715 to Q 3724) and defined contribution plans ( Q 3725 to Q 3731), and (2) pension ( Q 3733 to Q 3748) and profit sharing plans ( Q 3749 to Q 3751).

To some degree, these categories overlap. For example, all defined benefit plans are pensions, but not all pensions are defined benefit plans ( Q 3733). Similarly, all profit sharing plans are defined contribution plans, but not all defined contribution plans are profit sharing plans; some are pensions.

Furthermore, special qualification, design, and nondiscrimination requirements apply to 401(k) plans ( Q 3752 to Q 3808). Section 412(i)¹ insurance contract plans, although subject to the general requirements for defined benefit plans, must meet special requirements ( Q 3812 and Q 3813) to be exempt from certain funding standards ( Q 3742 to Q 3748). Stock bonus plans and ESOPs are subject to their own special requirements ( Q 3816 to Q 3825). There also are special rules for Keogh and S corporations plans ( Q 3826 to Q 3829).

Limitations on an employer’s deduction for plan contributions generally are based on whether the plan is a pension ( Q 3735) or a profit sharing plan ( Q 3750).

Plans that offer insurance benefits are subject to the special rules explained in Q 3830 (for plans that offer life or health insurance to participants) and Q 3836 (for plans that transfer pension assets to Section 401(h) accounts).