Chapter 8

Question 1

Generally, older age entrants are favored in which of the following plans?
1. Defined benefit pension plans
2. Cash balance pension plans
3. Target benefit pension plans
4. Money purchase pension plans

Answer 1

1 & 3

Question 2

Plans that require mandatory funding are generally funded by?

Answer 2

The employer

Question 3

Kareem is self-employed as a marketing consultant. He works primarily with start-up internet companies helping to develop corporate brand programs. Several years ago, he established a 401(k) profit-sharing plan and has accumulated $385,000 in the plan. Which of the following forms should Kareem file to meet his compliance requirements?

Answer 3

Form 5500 EZ

Question 4

Marie, the sole shareholder in Marie’s Pastries, is contemplating establishing a qualified plan. The corporation’s employee census is as follows:

Marie’s Pastries Employee Census
Employ|Age|Comp|Owner|Service
Marie. 55. $200,000 100% 30
Cheryl 38 $45,000 0 20 years
Jeff 42 $28,000 0 14 Years
Ruby 34 $24,000 0 11 Years
Total $297,000 100%
The company experiences very low turnover.
Marie, a long-time widow, has always treated the employees like her family and the company has experienced very low turnover. She would like to use the retirement plan to assist her in transferring ownership interest to the employees as she is ready to retire. She has a strong preference for avoiding and deferring taxes. She is opposed to mandatory funding and indifferent to integration. Which plan would be appropriate for Marie?

Answer 4

Employee stock ownership plan.

Question 5

Generally, which of the following are contributory plans?

Answer 5

401(k) and thrift plans.

Question 6

Tracy, age 46, is a self-employed financial planner and has Schedule C income from self-employment of $56,000. He has failed to save for retirement until now. Therefore, he would like to make the maximum contribution to his profit-sharing plan. How much can he contribute to his profit-sharing plan account for 2023?

Answer 6

$10,409

Question 7

The target benefit pension plan and the money purchase pension plan provide some employee/participant investment diversification protections by limiting the investment amount in employer stock to less than or equal to:

Answer 7

10%

Question 8

Which of the following generally contribute to defined benefit plans, profit-sharing plans, and money purchase pension plans?

Answer 8

Employer only

Question 9

Company A, a C corporation, has been capitalized by MJBJ Vulture Capital, a venture capital company. Company A’s cash flows are expected to fluctuate significantly from year to year, due to phenomenal growth. They expect to go public within three years. Which of the following would be the best qualified plan for them to consider adopting?

Answer 9

Stock bonus plan

Question 10

Westgate Inc. recently adopted a profit-sharing plan. Westgate has two offices, the North Westgate office and the South Westgate office. There are 10 employees in the North Westgate office, 5 of which are eligible for the plan; and 15 employees in the South Westgate office that are all eligible for the plan. Which of the following statements is true?

Answer 10

A Summary Plan Description must be furnished to each participant within 120 days of plan establishment.

Question 11

Florence, age 55, is an attorney who is self employed. Her assistant, Joy, has worked with her for five years. Florence is establishing a SEP for this year and is willing to make a contribution of 10 percent of Joy’s salary to the SEP. If Florence earns $90,000 after paying Joy, her expenses, and the contribution to Joy’s SEP, what is the most that she can contribute to the SEP on her behalf for 2023?

Answer 11

$7,604

Question 12

Qualified retirement plans that permit the employer unlimited investment in sponsor company stock are:
1. 401(k) plans
2. Stock bonus plans
3. Profit sharing plans
4. ESOPs

Answer 12

ALL

Question 13

Investment portfolio risk is generally borne by the participant/employee in all of the listed qualified plans, except:
1. Defined benefit pension plan
2. Cash balance pension plan
3. 401(k) plan
4. Profit sharing plan

Answer 13

1 & 2

Question 14

Employees generally contribute to which of the following plans?
1. 401(k) plans
2. Thrift plans
3. Cash balance pension plans
4. Defined benefit pension plans

Answer 14

1 & 2

Question 15

Which of the following qualified plans require mandatory funding?
1. Defined benefit pension plans
2. 401(k) plans with an employer match organized as a profit sharing plan
3. Cash balance pension plans
4. Money purchase pension plans

Answer 15

1,3,4

Question 16

A distress termination of a qualified retirement plan occurs when:

1. The PBGC initiates a termination because the plan was determined to be unable to pay benefits from the plan.
2. An employer is in financial difficulty and is unable to continue with the plan financially. Generally, this occurs when the company has filed for bankruptcy, either Chapter 7 liquidation or Chapter 11 reorganization.
3. The employer has sufficient assets to pay all benefits vested at the time, but is distressed about it.
4. When the PBGC notifies the employer that it wishes to change the plan due to the increasing unfunded risk.

Answer 16

2 Only

Question 17

Who generally makes elective deferrals to a 401(k) plan?

Answer 17

Employees only

Question 18

Which of the following statements are correct regarding assets reverting back to the sponsor or a qualified plan?

1. Under a merger, assets from a qualified plan can revert back to the plan sponsor without regard to the relationship between the value of the plan assets compared to the value of the obligations under the plan.
2. Any reversion of plan assets will always be subject to a 20% penalty

Answer 18

Neither 1 nor 2