Qualified Retirement Plan

Loading the player...

What is a 'Qualified Retirement Plan'

A type of retirement plan established by an employer for the benefit of the company’s employees. Qualified retirement plans give employers a tax break for the contributions they make for their employees. Qualified plans that allow employees to defer a portion of their salaries into the plan also reduce employees’ present income-tax liability by reducing taxable income. Qualified retirement plans help employers attract and retain good employees.

BREAKING DOWN 'Qualified Retirement Plan'

Qualified plans come in two types: defined benefit and defined contribution. Defined benefit plans give employees a guaranteed payout and place the risk on the employer to save and invest properly to meet plan liabilities. A traditional pension is an example of a defined benefit plan. Under defined contribution plans, the amount employees receive in retirement depends on how well they save and invest on their own behalf during their working years. A 401(k) plan is an example of a defined contribution plan.

Qualified plans only allow certain types of investments, which vary by plan but typically include publicly traded securities, real estate, mutual funds and money market funds. They also specify when distributions can be made, typically when the employee reaches the plan’s defined retirement age, when the employee becomes disabled, when the plan is terminated and not replaced by another qualified plan, or when the employee dies (in which case the beneficiary receives the distributions).

Workers may take distributions from qualified plans before one of these triggering events occurs, but they will be subject to taxes and penalties that might make it unwise to take an early distribution. Some plans also allow employees to borrow from the plan under strict rules about how the loan must be repaid. For example, they may require that the loan be repaid within a certain number of years, that the worker pay interest (which goes back into the plan) on the loan and that the loan be repaid immediately if the employee leaves the job to which the qualified retirement plan is tied.

RELATED TERMS
  1. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
  2. Employee Contribution Plan

    A company-sponsored retirement plan where employees may elect ...
  3. Past Service

    Service to an employer that is recognized for the defined benefit ...
  4. Active Participant Status

    Active-participant status is a reference to an individual's participation ...
  5. Variable Benefit Plan

    A type of retirement plan in which the payout changes depending ...
  6. Withdrawal Benefits

    The rights of an employee who has a qualified pension plan to ...
Related Articles
  1. Retirement

    What's a Qualified Retirement Plan?

    Employers establish qualified retirement plans to help their employees save money.
  2. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  3. Retirement

    What's a Defined Contribution Plan?

    A defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.
  4. Retirement

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  5. Retirement

    This Is Why Your Employer Should Offer a 401(k)

    Understand the unique benefits that come with a small business offering a retirement savings plan such as a 401(k) to current and future employees.
  6. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
  7. Retirement

    Retirement Planning for the Self-Employed

    How to select a qualified retirement plan if you are self-employed and have no employees.
  8. Retirement

    Comparing Qualified And Non-Qualified Plans

    Qualified and non-qualified retirement plans are created by employers to benefit their employees.
  9. Retirement

    Florida's Surprisingly Flexible State Retirement System

    Retired Florida employees can choose a 401(k)-style investment plan or a traditional pension.
  10. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
RELATED FAQS
  1. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ... Read Answer >>
  2. Is a 401(k) a qualified retirement plan?

    Examine the different types of qualified retirement plans, and discover if a 401(k) meets the definition of a qualified retirement ... Read Answer >>
  3. What are qualified retirement plan types?

    Understand the different types of qualified retirement plans and what they mean in terms of employee and employer contribution ... Read Answer >>
  4. What is the best retirement plan option for a physician with her own practice, employees ...

    It is very unlikely that you will find a qualified plan or an IRA-based plan that will allow the employer to exclude other ... Read Answer >>
  5. What is the difference between a 401(k) plan and a 457 plan?

    Discover how 401(k) plans are privately offered employee retirement plans, while 457 plans are typically available to public ... Read Answer >>
  6. What is the difference between qualified and non-qualified plans?

    Qualified and non-qualified retirement plans are created by employers with the intent of benefiting employees. The Employee ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center