A qualified retirement plan is an employer-sponsored retirement plan that meets the requirements of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA), making it eligible for certain tax benefits. Qualified retirement plans are designed to provide retirement income to designated employees and their beneficiaries, and they come in different types, including 401(k) plans, pension plans, and profit-sharing plans.
To be considered qualified, a retirement plan must satisfy the Internal Revenue Code in both form and operation. This means that the provisions in the plan document must comply with the Code, and the plan must be operated in accordance with the plan document. Qualified retirement plans provide certain tax advantages to employers and tax deferral advantages to employees who are contributing. Taxes on earnings from the contributions are also deferred until the employee withdraws them from the plan.
Qualified retirement plans can be either defined-benefit or defined-contribution plans. Examples of qualified retirement plans include traditional pensions, 401(k) plans, and profit-sharing plans. Employers must follow procedures to ensure participants and beneficiaries are able to receive their benefits, and they must also stay apprised of changes in retirement plan laws and regulations.
In contrast, non-qualified retirement plans do not meet all ERISA stipulations and are generally offered to executives and other key personnel whose needs cannot be met by an ERISA-qualified plan.
