Chapter 2: Type of Plans

Question 2

An employee bears the investment risk in a defined benefit plan.

Answer 2

False. An employer bears the investment risk in a defined benefit plan.

Question 3

A SIMPLE IRA plan must have a calendar plan year.

Answer 3

True.

Question 4

A SEP is available only to individuals.

Answer 4

False. A SEP is an employer-sponsored plan.

Question 5

Participant loans are permitted in a SIMPLE 401(k) plan.

Answer 5

True.

Question 6

A target benefit plan is a nonpension plan.

Answer 6

False. A target benefit plan is a pension plan.

Question 7

An employer bears the investment risk in a defined contribution plan.

Answer 7

False. ‘The employee bears the investment risk in a defined contribution plan.

Question 8

ADP testing does not apply to a defined benefit plan.

Answer 8

True.

Question 9

A SEP may have a vesting schedule.

Answer 9

False. All contributions to the SEP must be nonforfeitable.

Question 10

A 40l(k) plan is a nonpension plan.

Answer 10

True.

Question 11

A stock bonus plan may include a 40l(k) arrangement.

Answer 11

True.

Question 12

Which of the following statements regarding types of defined contribution plans is/are TRUE?

I. An employee bears the investment risk in a defined contribution plan.

II. A money purchase plan is a nonpension plan.

III. A stock bonus plan may include a 401(k) component.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Answer 12

C. A money purchase plan is a defined contribution plan that is classified as a pension plan.

Question 13

Which of the following statements regarding types of defined contribution plans is/are TRUE?

I. A target benefit plan is a defined contribution plan.

II. An ESOP is designed to invest primarily in employer stock.

III. A profit sharing plan is a nonpension plan.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Answer 13

E. All three statements are true.

Question 14

Which of the following types of plans are generally required to file Form 5500?

I. Money purchase plan

II. SIMPLE 401(k) plan

III. SEP

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

Answer 14

C. A SEP is not required to file Form 5500 if certain conditions are met.

Question 15

All of the following statements regarding defined contribution plans are TRUE, EXCEPT:

A. A profit sharing plan may use forfeitures to reduce employer contributions.

B. A money purchase plan is subject to minimum funding requirements under IRC §412.

C. A profit sharing plan may be exempt from QJSA requirements.

D. Employer contributions are discretionary in a SIMPLE 401(k) plan.

E. A SEP is subject to full and immediate vesting of employer contributions.

Answer 15

D. Employer contributions are mandatory in a SIMPLE 401(k) plan.

Question 16

Which of the following plans is/are considered pension plans?

I. Money purchase plan

II. Stock bonus plan

III. Target benefit plan

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Answer 16

C. A stock bonus plan is a nonpension plan.

Question 17

All of the following statements regarding SIMPLE plans are TRUE, EXCEPT:

A. SIMPLE IRAs may allow for catch-up contributions.

B. SIMPLE 401(k) plans may allow for catch-up contributions.

C. SIMPLE IRAs do not have to file a Form 5500.

D. Participant loans may be available in SIMPLE !RAs.

E. Participant loans may be available in SIMPLE 401(k) plans.

Answer 17

D. participant loans are not permitted in SIMPLE IRAs.

Question 18

All of the following statements regarding money purchase pension plans are TRUE, EXCEPT:

A. The IRS imposes a nondeductible excise tax on the employer for failure to make the required contributions under IRC §412.

B. The formula for determining the amount of the contribution and the formula for allocating the contribution may be different.

C. The annual contribution must be determined by a formula specified in the plan document.

D. Participant loans may be permitted.

E. Hardship withdrawals may be permitted.

Answer 18

E.

Question 19

All of the following statements regarding charaacteristics of defined contribution plans are TRUE, EXCEPT:

A. Actuarial certifications are never required.

B. The employer bears the risk of investment gain/loss.

C. Individual participant account balances must be maintained.

D. Forfeitures may be used to reduce employer contributions.

E. Annual additions are limited to the lesser of 100% of compensation or $40,000, as indexed.

Answer 19

B.

Question 20

What does ESOP stand for?

Answer 20

Employee stock ownership plan.

Question 21

What does QACA stand for?

Answer 21

Qualified automatic contribution arragement.

Question 22

What does SEP stand for?

Answer 22

Simplified employee pension.

Question 23

All of the following statements regarding money purchase pension plans are TRUE, EXCEPT:

A. The IRS imposes a noneductible excise tax on the employer for failure to make the required contribution under IRS §412.

B. The formula for determining the amount of the contribution and the formula for allocating the contribution may be different.

C. The annual contribution must be determined by a formula specified in the plan document.

D. Participant loans may be permitted.

E. Hardship withdrawwals may be permitted.

Answer 23

E.

Question 24

All of the following statements regarding characteristics of defined contribution plans are TRUE, EXCEPT:

A. Actuarial certifications are never required.

B. The employer bears the risk of investment gain/loss.

C. Individual participant account balances must be maintained.

D. Forfeitures may be used to reduce employer contributions.

E. Annual additions are limited to the lesser of 100% of compensation or $40,000, as indexed.

Answer 24

B.