Chapter 9: Prohibited Transactions Flashcards
A disqualified person is always a party-in-interest.
True or False?
True
A party-in-interest is always a disqualified person.
True or False?
False. A party-in-interest is not always a disqualified person.
A PT does not necessarily mean plan disqualification.
True or False?
True
The PT rules do not apply to plans whose assets are participant-directed.
True or False?
False. Plans that are participant-directed are not exempt from the PT rules.
A plan may not sell or lease property to a disqualified person.
True or False?
True
Loans to plan participants are exempt from the PT rules as long as certain conditions are met.
True or False?
True
A class exemption provides relief from the excise tax under the IRC and the fiduciary liability consequences under ERISA.
True or False?
True
An excise tax of 100 percent of the amount of the PT may be imposed if the transaction is not corrected in a timely manner.
True or False?
True
The plan is liable for payment of the PT excise tax.
True or False?
False. The disqualified person is liable for payment of the excise tax on the PT.
The DOL may assess civil penalties on a party-in-interest involved in a PT.
True or False?
True
Which of the following is not a disqualified persons under IRC §4975?
A. An accountant who prepares Form 5500 for a plan
B. A brother of a 45 percent owner of the plan sponsor
C. A plan trustee’s father
D. A member of the board of directors of the plan sponsor
B. A brother is not considered a family member under the attribution rules applicable to PTs. A family member would be included as a disqualified person under IRC §4975 only if the relative’s ownership is at least 50 percent.
Which of the following transactions is not an exemption from the PT rules?
A. The purchase by the plan of the building in which the sponsor conducts his or her business
B. Reasonable compensation paid for necessary accounting services for the plan
C. The sale of life insurance to a participant from the plan
D. The investment of assets of the plan in a bank that is also the plan’s trustee
A. If the sponsor owns the building, this would be a sale of property between the sponsor and the plan. If a third party owns the building, the sale to the plan would then violate the use of plan assets for the sponsor’s benefit. Both are PTs.
Which of the following statements regarding consequences of PTs is/are TRUE?
1. Form 5330 is used to transmit the applicable excise tax to the IRS.
2. EPCRS is available to correct PTs.
3. The initial excise tax is 15 percent of the amount involved.
A. 1 only
B. 2 only
C. 1 and 2 only
D. 1 and 3 only
D. EPCRS is not currently available to correct PTs.
Which of the following is not a covered service provider under the fiduciary fee disclosure regulations?
A. Registered investment advisor compensated by plan assets
B. Investment platform provider whose fee is paid by the plan
C. Trustee who is paid a percentage of the plan assets from the plan
D. Third-party administrator who is paid directly by the plan sponsor
D. If the service provider’s fees are paid by the plan sponsor rather than the plan, the disclosure fee disclosure rules do not apply to the service provider.
Which of the following statements regarding consequences of failing to comply with the required fiduciary fee disclosures is/are TRUE?
1. The PT exemption will not apply to the covered service provider.
2. The covered service provider will be liable for a 15% excise tax on the amount of fees charged.
3. The IRS may require the service provider to return to the plan any fees that have been paid.
A. 1 only
B. 2 only
C. 1 and 3 only
D. 1, 2, and 3
D. All statements are True.
