Qualified Plans

Qualified plans have 13 key characteristics that set the minimum requirements for employer and employee tax benefits. Participation rules generally allow employees to join after reaching age 21 and completing one year of service (1,000 hours). Coverage requirements prevent favoring highly compensated employees, using either the ratio percentage test or average benefit test to ensure fairness. Defined benefit plans must also cover at least 50 employees or 40% of the workforce. Vesting rules protect employees’ rights to their own contributions and, over time, to employer contributions. Nondiscrimination rules prohibit preferential treatment for highly compensated employees, satisfied through safe harbors or testing. Top-heavy provisions require minimum benefits and vesting if key employees hold over 60% of total plan benefits. Minimum funding standards ensure employers contribute enough to meet promised benefits, and plans may integrate with Social Security under certain limits. Distributions can be triggered by separation from service, the 10th anniversary of participation, or reaching normal retirement age, and may be paid as lump sums, annuities, or periodic payments. Additional rules include spousal protection (QJSA/QPSA), recognition of qualified domestic relations orders (QDROs) in divorce, and strict termination procedures for defined benefit plans.