Fin 589

Differences between Stock bonus vs. Profit sharing plans

- Contributions -Valuation requirement -Investment diversification -Voting of employer stock -Distributions from the plan

similarities between stock bonus vs. profit sharing plans

- Establishment of the plan - Eligibility -Contributions: date, amount, and allocation - Vesting - Loans

what are stock bonus plans?

- defined contribution profit sharing plans - employers contribute stock to the plan -contributions are discretionary -allocations to the plan must be nondiscriminatory

qualified plan requirements

- eligibility -coverage -vesting

what is the U.S Govt. Thrift plan?

- not a qualified plan - limits (most features) are the same as w/ 401l - includes traditional and roth accounts

advantages of getting stock bonus plan

- value of the employer stock contributed is tax deductible for the employer -gives participants vested interest in performance of company

disadvantages of stock bonus plans

-employee has the risk of a non diversified portfolio -put option could create cash flow problems for employer -employer incurs valuation costs at contribution of stock

what are ESOPs?

-established as a trust -receives allocations of the employer stock from the ESOP -employer receives a tax deduction for the value of the stock contribution

what is a hardship distribution?

Distribution for immediate and extreme financial need

factors for immediate and extreme financial need

Medical ExpensesFuneral ExpensesPurchase of principal residenceEducationEvictionCasualty loss or disaster

Hardship Distribution can come from

QNEC, QMC, and earnings

Employee Stock Ownership Plans(ESOP)

is a particular type of stock bonus plan

special req. of stock plans

participants must have: - pass through voting rights of stock -the right to demand employer securities when taking distributions -a put option to the employer - .......