Alternative Minimum Cost Method


DEFINITION of 'Alternative Minimum Cost Method'

An ERISA approved method of funding pension plans. Pension plan administrators have two choices available to them when it comes to plan funding. The plan can be funded according to either the actuarial cost method or the accrued benefit cost method, which does not use benefit projections.

BREAKING DOWN 'Alternative Minimum Cost Method'

The alternative minimum cost method requires complex actuarial calculations regardless of which specific alternative is used. Administrators will usually choose an alternative based on which is cheaper. The cheapest choice generally depends on various demographic factors pertaining to the plan participants.

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  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  3. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  4. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  5. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  6. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>

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