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Define Contributing Plan

(1) A defined contributing plan provides for seven year vesting schedule.

Fred Ziegler completes the following service
Year Hours of Service
2002 1,000
2003 350
2004 1,100
2005 650
2006 1,100
2007 1,000

When does Fred participate in the plan? When does he vest in the plan? Explain your answer in detail.

(2) What is a major non-tax advantage to set up a qualified plan?

(3) A step in the selection of employee plan type is gathering the data. What tool is used by an employer to accomplish this task? Explain its contents.

Solution Preview

Tax problem:
Explain the questions:
Fred can participate in the plan at 21 years old and have worked one year. He is 100% vested in the plan after seven years. The department of labor website states that there are two ways to vest in a defined contributing plan which was established in 2002 and they are:
1. There is a 3 year plan in which after 3 years of working for a company an employee is automatically 100% vested after 3 years.
2. There is a six year plan in which an employee is vested 20% after two years and the rest at a rate of 20% a year ...

Solution Summary

The expert defines contributing plans for a seven year vesting schedule.