Life and Death Planning for Retirement Benefits

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400 Life and Death Planning for Retirement Benefits
8.3.02 401(k) plan; elective deferral; CODA
A 401(k) plan is an elective deferral plan (also called a cash-or-deferred arrangement
or CODA), meaning that the plan is at least partly funded by voluntary salary reduction (or bonus
reduction) contributions. Under a CODA, the participant agrees, in advance, to have part of his
compensation contributed to a retirement plan account for his benefit instead of being paid to him
in cash. The portion of the account that is funded with the employee’s elective deferral
contributions is subject to additional rules (over and above the rules that apply to all retirement
plan benefits), such as a restriction on distributions prior to age 59½. 401(k) and 403(b) plans,
SEP-IRAs, and SIMPLEs are other examples of plans that are often funded by means of elective
deferrals. See regarding FICA tax treatment of elective deferrals.
The employer that sponsors the 401(k) plan may make additional “matching” or other
contributions to the participant’s account. A 401(k) plan is a type of QRP and may be a Keogh
plan.
8.3.03 403(b) plan
403(b) plans (also called “403(b) arrangements ” or “ TSAs,” which stands for tax-
sheltered annuities) are available only to tax-exempt employers. Some 403(b) arrangements are
funded exclusively by means of elective deferrals . Others are funded partly or solely by
employer contributions; these latter plans must meet the same requirements as QRPs .
403(b) plan assets are held in the name of the employee (like an IRA), not in the name of
the plan itself (the way QRP assets are held). 403(b) plans may invest only in annuity contracts
purchased by the employer and issued in the name of the employee and/or in mutual funds held by
a bank (or other approved institution) as custodian for the employee.
A 403(b) plan distribution is never eligible for treatment as a lump sum distribution under
. Also, the minimum distribution rules apply slightly differently; see
Regarding rollovers of 403(b) benefits, see ¶ 2.6 (participant) (surviving spouse),
o (other beneficiaries).
Deemed IRA, deemed Roth IRA. See
8.3.04 Defined Benefit plan
A defined benefit plan is a type of QRP. Under a defined benefit plan, also called a “defined
benefit pension plan,” the employer promises to pay the employee a specific pension, starting at
retirement, and continuing for the employee’s life. Defined benefit plans have their own separate
set of minimum distribution rules; see
A. “Classic” defined benefit plan. Under the classic type of defined benefit plan, the amount
of the pension is based on a formula, such as “a monthly pension for life, beginning at age
65, equal to 1/12th of 1 percent of final average compensation times years of service,
reduced by 10 percent for each year of service less than 10 if the employee has less than
10 years of service, and up to an annual maximum of 40 percent of career average
compensation.”