Deck for RPA2

Question 1

five types of risk

Answer 1

Purchasing Power
Business
Interest
Market
Specific to Company

Question 2

Alpha

Answer 2

Return produced by the portfolio, on average, independent of the return on the market

Question 3

Beta

Answer 3

Average return on the portfolio per 1 percent return on the market

Question 4

Internal rate of return (IRR)

Answer 4

Rate that accumulates all of the cash flows of the portfolio including all outlays, to exactly the market value of the ending balance

Question 5

404(c)

Answer 5

ERISA section that provides fiduciary protection for participant investment selection provided requirements are met:
minimum of 3 diversified investment options
quarterly (or more frequent) investment changes
participant education

Question 6

Passive investment management style

Answer 6

Broadly diversified buy-and-hold portfolio aimed at replicating the return on some board market index at minimum cost

Question 7

Index funds

Answer 7

replicates a particular index such as the S&P 500 and is designed to generate a beta of 1.0

Question 8

Allowable deductible IRA contribution

Answer 8

$5,000 in 2008 (indexed in future years)
Increases by $500 increments
$5,500 in 2009 and 2010
Catch-up Contribution $1,000 (in 2008)

Question 9

IRA contribution deductibility limit

Answer 9

Single taxpayers: $52,000 to $62,000 in 2007

Married taxpayers: $83,000 to $103,000 in 2007

Question 10

Excess contribution excise tax

Answer 10

6% excise tax in addition to current income taxation

Applied each year until the excess contribution is withdrawn from the IRA

Question 11

ROTH IRA

Answer 11

Same contribution limits as regular IRA
Contributions are taxed in year of contribution
Distribution (earnings and contributions) are not taxed if ‘qualified”

Question 12

Conversion to ROTH IRA

Answer 12

Individual IRA owner can opt to transfer regular IRA to Roth IRA - converted amounts are taxed in year of conversion, no early distribution penalty

Question 13

Deemed IRA

Answer 13

Created by EGTRRA

Employer sponsored plan can have IRA accounts that accept voluntary contributions

Question 14

Tax Credit

Answer 14

Encouragement for lower and middle income employees to contribution to retirement plan
Tax credit claimed on individual’s tax return

Question 15

Keogh Plan

Answer 15

Retirement plan for self-employed individual

Question 16

SEP Requirements

Answer 16

Simplified Employee Pension
In writing
Employee requirements:
-Age 21; worked in 3 our of last 5 years, received at least $500 in 2007 (indixed);  fully vested
Held in IRA

Question 17

Keogh Contributions

Answer 17

Contribution for self-employed owner is based on:

earned income (minus contribution to the plan)
Less half of SECA
Max of $225,000 in 2007 ($245,000 in 2010)

Question 18

SIMPLE

Answer 18

Savings Incentive Matching Plan for Employees
Elective deferral limit same ast401(k)
Catch up contributions
Required employer matching contribution

Question 19

SOLO 401(k) Plan

Answer 19

Designed for business owner and spouse

Greater contributions than a profit sharing plan

Question 20

Excess benefit Plan

Answer 20

Provide benefits in excess of Section 415 limits on benefits and contributions

Question 21

Top Hat Plans

Answer 21

Unfunded plans
Provide deferred compensation for a select group of management or higher compensated employees
ERISA Title I plans but not subject to participation, vesting, funding or fiduciary responsibility of ERISA plan

Question 22

Constructive Receipt

Answer 22

Concept that if a taxpayer could receive income at any time but elects to receive it later, he or she is still taxed currently because of having the non-forfeitable right to the income

Question 23

Economic Benefit

Answer 23

If a taxpayer is receiving a current benefit, he or she should be taxed on the value of that benefits

Question 24

Section 409A

Answer 24

Mandates the terms and conditions that can be in nonqualified deferred compensation plans

Question 25

ISO

Answer 25

Incentive Stock Options
• Available at employers discretion to only some
employees, often only HCE
• Term (duration) limited to 10 years
• Min. 2 year hold
• Option price must equal or exceed value of stock
when granted

Question 26

Employee Stock Option Plan

Answer 26

Option arrangements

where full‐time employees are allowed to buy stock in employer’s corporation, often at a discount

Question 27

NQSO

Answer 27

Nonqualified Stock Option

• More flexible than ISO

Question 28

Section 83(b) election

Answer 28

Individual can elect within 30 days of a transfer to include the fair market value of the transferred property (stock) in his/her gross income currently

Question 29

Methods for exercising stock options

Answer 29

Cash stock options
• Stock‐for‐stock exercise
• Cashless exercise
• Reload options

Question 30

Final Average Pay

Answer 30

Defined Benefit formula that is based on the

average of the final 3 or 5 years of pay

Question 31

Career Average Pay

Answer 31

Defined Benefit Formula that is based on the average of pay throughout the career of the employee with that employer

Question 32

Excess Integration Formula

Answer 32

A a DB plan formula that provides a different benefit rate for compensation below the SS wage base than for compensation over the SS wage base

Question 33

Offset Integration Formula

Answer 33

DB plan formula for integration with SS that is based on the individual’s SS benefit

Question 34

Defined Benefit Formula

Answer 34

Flat dollar amount
• Flat Percentage of pay
• Percentage of compensation multiplied by years of service

Question 35

Ultimate Cost of Defined Benefit Plan

Answer 35

Equals the Benefit Plan total benefits paid plus

administrative expenses less investment earnings over the total life of the plan

Question 36

Defined Benefit Cost Factors

Answer 36

Longevity of participants
Age, sex, salary and length of service of participants
Earnings of plan assets
Benefit formula

Question 37

Target Normal Cost

Answer 37

Present value of the benefits expected to accrue during the plan year.
Includes increases in past service benefits
because of expected increases in compensation during plan year

Question 38

Minimum Funding under PPA

Answer 38

Plan’s normal cost PPA Plan s target for the plan
PLUS
The shortfall contribution necessary to amortize
the difference between assets and 100% of liabilities over a seven year period of time

Question 39

DB Contribution Limit

Answer 39

Greater of

1. The sum of the plan’s funding target, the plan’s target normal cost, and a cushion amount, minus the plan’s unreduced assets for the plan year
2. The minimum required contribution for the plan

Question 40

PBGC

Answer 40

Pension Benefit Guarantee Corporation

A federal agency the provides plan termination insurance for most DB plans

Question 41

Current Disbersement Funding Approach for DB Plans

Answer 41

Employer finds retired worker’s monthly pension as
each payment comes due.
No accumulation of pension funds in a trust
Not permitted under ERISA

Question 42

Terminal Funding Approach for DB Plans

Answer 42

At the time of an Approach for DB Plan employee’s retirement, the employer sets aside a lump‐sum amount sufficient to provide the monthly benefit
promise under the plan
Not permitted under ERISA

Question 43

DB Plan Assets Fair Market Values under PPA

Answer 43

Current Values under PPA market value is used, but some amount of “smoothing” is permitted – based on averaged asset value over two years & within a range of 90% to 110% of the fair market value on the plan’s valuation plan’s valuation date