The Internal Revenue Code provides significant tax advantages for an employer that establishes and maintains a qualified retirement plan for the benefit of its employees. But, before a plan is entitled to the benefit of the incentives, it and its associated trust must satisfy a series of specific requirements. Among the more important tax qualification requirements are the following:

• Exclusive Benefit: All contributions must be for the exclusive benefit of the participants and their beneficiaries and it must be impossible, before all plan liabilities are satisfied, for any part of the contributions to be used other than for the purpose of providing plan benefits.
• Minimum Coverage and Participation: The plan must cover a minimum number of employees, i.e., it must pass either a straight forward ratio/percentage test or a complex "average benefits" test - which is expensive to install and administer. A defined benefit plan must generally benefit at least the lesser of 50 employees or the greater of 40% of all employees or two employees, or one if there is only one employee.
• Age and Length of Service: In general, the plan must provide that an employee becomes a participant on an entry date next following the date the employee attains age 21 and completes a year of service - generally, a consecutive 12-month period during which the employee is credited with 1,000 or more hours of service.
• Non-Discrimination as to Benefits or Contributions: A plan may not discriminate as to benefits or contributions in favor of highly compensated employees, i.e., it need not be non-discriminatory as to both, just one or the other. A defined benefit plan typically satisfies the non-discriminatory requirement as to benefits while a defined contribution plan does so with respect to contributions. Moreover, a plan may limit participation to salaried or clerical employees, "integrate" or take into account Social Security benefits, and in the case of defined contribution plan, allocate contributions on the basis of compensation. But, as to a top heavy plan, special minimum benefit or contribution rules apply. As to a defined benefit plan, a non-key employeee's accrued benefit must be at least the lesser of 2% of a participant's average compensation multiplied by a participant's years of service or 20% of such participant's average compensation. And, as to a defined contribution plan, a non-key employeee's share of the employer's contribution must not be less than the lesser of 3% of such participant's contribution or the percentage at which contributions are made for key employeees.
• Vesting: A participant's plan benefit must vest, i.e., must be distributed to the participant when the participant quits or retires as measured by the application under one of three vesting schedules: a five-year "cliff" schedule, a seven-year graded schedule, and in the case of a "top heavy" plan, a six-year graded vesting schedule.
• Benefit Accrual: Typically, highly compensated employees, tend to remain with an employer longer than other employees. And so, a defined benefit plan may not "back load" benefit accruals, i.e., provide for a low rate of benefit accrual in a participant's early years of service and much higher rates for successive years.
• Forfeitures: As to a defined benefit plan, any amount relinquished or forfeited because the participant failed to satisfy the vesting schedule, must be used to reduce future employer contributions. But, as to a defined contribution plan, a forfeiture may be reallocated to the remaining participants or used to reduce future employer contributions.
• Minimum Required Distributions: A participant's plan benefit must be made available to the participant not later than a specified date and must be distributed to a participant not later than the later of April 1 of the year following the calendar year in which a participant attains age 70½ or terminates employment. An individual who owns 5% of the employer must begin distributions without regard to the termination of employment rule.
• Joint and Survivor Annuity and Pre-Retirement Survivor Annuity Rules: As to most all retirement plans other than a profit sharing or stock bonus plan, the distribution of a married participant's lifetime plan benefit must be in the form of a joint and survivor annuity and a married participant's death plan benefit in the form of a pre-retirement survivor annuity, both absent the waiver of such form by the participant and the consent of the participant's spouse.
• Miscellaneous Requirements: Special rules apply to most plans, including those related to mergers, consolidations and asset transfers, anti-assignment of plan benefits, qualified domestic relations or "divorce" orders, plan loans, offsets for breach of fiduciary duty or criminal conduct, limits on reducing benefits to take into account changes in Social Security, specification of actuarial assumptions in the case of a defined benefit plan, restrictions on holding employer securities, and other requirements.