EXAM 1 Flashcards
(144 cards)
1
Q
Service is the basis on which a plan determines all of the following EXCEPT:
A
contributions
2
Q
The initial year of service for eligibility purposes is always based on which of the
following?
A
Employment year
3
Q
Which of the following is NOT a test that a qualified plan must satisfy?
A
Highly Compensated Test
4
Q
For a defined contribution plan, annual additions include all of the following EXCEPT?
A
Plan fees and expenses
5
Q
Top-heavy retirement plans using graded vesting require at least _______ vesting after
3 years.
A
40%
6
Q
Which of the following is NOT a factor in determining key employee status?
A
An officer having compensation in excess of 2 times the annual addition limit
7
Q
A plan is determined to be top heavy with respect to a plan year if the ratio determined
by dividing the account balance of key employees by the account balances of all
employees EXCEEDS:
A
60%
8
Q
ERISA vesting requirements in non-top heavy plans:
A
require years to be counted, if the employee was paid for at least 1000 hours.
9
Q
A defined contribution plan is top heavy when the account balances of key employees
exceed ________ of the total account balances, including distributions made during the
last five years.
A
60%
10
Q
A key employee is defined as follows EXCEPT for:
A
one of the ten largest owners of the employer.
11
Q
A minimum non-integrated contribution of 3% of compensation must be provided to
eligible participants for each year in which a key employee receives an allocation of at
least 3% in order to remedy:
A
a top-heavy situation
12
Q
For post Pension Protection Act employer Defined Contribution funds, cliff-vesting
schedules require employees to become 100% vested after:
A
3 years.
13
Q
For Post-Pension Protection Act employer contributions, minimum graded vesting for
non-top-heavy plans after 5 years is:
A
80%
14
Q
Which one of the following is an acceptable vesting schedule for a qualified pension
plan that is not top-heavy for Post Pension Protection Act employer Defined
Contribution Plans?
A
Immediate 100% vesting for all contributions
15
Q
Which of the following vesting schedules may NOT be applied to either elective or
matching employer contributions?
A
4-7 year graded
16
Q
Which of the following is NOT a valid reason for maintaining a qualified retirement
plan?
A
The law requires that every company with 25 or more employees maintain a
qualified retirement plan.
17
Q
Growth in qualified retirement plans is:
A
tax deferred.
18
Q
Which of the following is NOT a reason for maintaining a qualified retirement plan?
A
The law requires all companies with over 35 employees to offer one.
19
Q
Which of the following is NOT true for all qualified retirement plans?
A
Funds are tax exempt upon withdrawal after age 59 1/2.
20
Q
Today, an individual’s retirement income will most likely:
A
have to take inflation into account.
21
Q
“Qualified” with regard to a pension plan means that:
A
contributions to the plan by the employer are generally tax-deductible.
22
Q
A qualified plan participant who owns 100% of his or her retirement account is said to
be:
A
fully vested.
23
Q
Which of the following is NOT a tax advantage of qualified pension plans?
A
Tax-free distribution of plan death benefits
24
Q
The most widely accepted rationale for private pension plans is known as:
A
the deferred wage concept.
25
A qualified plan funding method that includes individual accounts for each participant,
with the participant having control over the investment of employer contributions is
called:
an individual account plan method.
26
ERISA places limitations on:
a plan's benefits and contributions.
27
The 4 R's of compensation policy that are important objectives of designing employee
benefit plans include all of the following EXCEPT?
Recognize
28
Which of the following is a type of nonqualified deferred compensation program?
Supplemental executive retirement plan
29
To claim a tax deduction for contributions to a qualified retirement plan for the first plan
year, all of the following must be accomplished by year-end EXCEPT:
all contributions must be made to a qualified trust.
30
The Internal Revenue Service will generally approve a plan termination EXCEPT when
the:
All of the answers are acceptable to the IRS.
31
All of the following are true regarding retroactive amendments EXCEPT?
Retroactive amendments can be made up to the employer's tax filing date,
excluding extensions.
32
In a rush to get a qualified retirement plan installed before the deadline for the tax year,
the owner of Baxter Concrete failed to get a determination letter from the IRS. Five
years later, Baxter is audited. If the IRS finds a disqualifying provision or if an essential
provision is missing from Baxter's plan, the IRS could impose all of the following
EXCEPT?
Baxter's board could be charged for a criminal offense.
33
Acorn Booksellers is a small business interested in adopting a qualified retirement plan.
The owner of Acorn wants to be able to choose from more than one financial institution
when implementing the plan. Acorn’s owner also wants to determine such things as
the vesting schedule, and the contribution or benefit formula. As a small business,
Acorn wants to keep costs down. You recommend that Acorn use:
a prototype plan because it would give Acorn choice in funding institution or medium
while keeping installation and implementation costs low.
34
ERISA mandates full reporting and disclosure to plan participants in all of the following
instances EXCEPT:
when the plan is being considered for adoption by the board of directors
35
A new plan must provide a summary plan description to eligible participants within
which of the following time frames?
Within 120 days after an eligible employee is credited with an hour of service
36
The disadvantages of age-weighted plans include all of the following EXCEPT?
Older higher paid participants receive a greater contribution
37
A money purchase plan document must include all of the following EXCEPT the:
earnings rate to be credited annually to each participant's account.
38
The maximum contribution to a money purchase pension plan for a common law
employee of an unincorporated business is:
25.00%
39
A money purchase plan is a type of:
defined contribution plan.
40
Money purchase pension plans:
must have a provision in the plan document fixing the amount of company
contribution.
41
Which of the following plans is subject to the MINIMUM funding requirements of the
IRS Code?
Money purchase
42
In a typical profit sharing plan which allows participants to direct investments,
participants must be provided a statement at least:
quarterly.
43
Which of the following is NOT an element of employee total return in a profit sharing
plan?
Forfeitures
44
Which of the following is TRUE for qualified profit-sharing plans?
All income from the plan's assets are not taxed until received.
45
All of the following are the maximum allowable tax deductible contributions that may be
made by a company to a profit sharing plan EXCEPT?
Excluding the 401(k) deferrals of employees.
46
Employer profit-sharing contributions use the following definition of compensation:
plan compensation.
47
Section 404 profit-sharing limits are tested at the _____________ year end.
plan
48
For employers with profit-sharing plans, the deductibility limit for plan contributions is
equal to _____ of employee compensation.
25%
49
Employers maintain the greatest flexibility in the amount of contribution to a qualified
retirement plan by adopting a:
profit-sharing plan.
50
As a condition of qualification, the IRS requires that a profit sharing plan contain:
a definite allocation formula
51
Target benefit plans:
are a form of money purchase plans.
52
A target benefit plan can be described as a combination of which of the following two
plan types?
Defined benefit and money-purchase pension
53
Which of the following is (are) true regarding a cash balance plan?
Each participant has a hypothetical account that the employer credits at least
annually
54
A cash balance plan and a traditional defined benefit plan share which of the following
characteristics EXCEPT?
A stated earnings credit
55
A defined benefit retirement plan document probably will NOT describe the:
plan investments.
56
Which of the following is NOT an advantage of a defined contribution plan?
Older employees accumulate greater accounts
57
For defined contribution plans, which of the variables below is the participant unable to
know in advance?
Ultimate benefit available to an employee
58
Excellent investment performance will reduce required employer contributions to a:
defined benefit plan.
59
Benefits in a defined benefit plan are BEST described as which of the following?
Dictated by the benefit formula in the plan.
60
The unknown element for defined benefit plans is:
the required annual contribution.
61
Forfeitures in a defined benefit plan:
reduce employer contributions.
62
Which of the following is the LEAST common form of payment from a defined benefit
plan?
Lump sum distribution
63
Defined benefit plans:
must allow a participant and spouse to elect against a joint and survivor benefit at
any time up to benefit commencement.
64
A benefit formula that pays $30 per year of service is an example of a:
flat amount per year of service formula.
65
Which plan has benefit levels that are guaranteed by both the employer and the
Pension Benefit Guaranty Corporation (PBGC)?
Defined Benefit Plan
66
April Showers, age 30, opened the Unique Boutique 5 years ago. April has 5
employees ranging in age from 25 to 42. Earnings have fluctuated. Profits have been
made only in the last two years. April:
should not establish a defined benefit plan because it is not likely April can meet the
annual funding requirements
67
When calculating the maximum actual deferral percentage for the highly compensated
group in a 401(k) arrangement, which of the following would NOT be acceptable?
If the non-highly compensated actual deferral is 3%, the average for highly
compensated can be 5 1/2%.
68
Which of the following describes a "qualified non-elective contribution" in a 401(k) plan?
An employer contribution that an employee could not have elected to receive in
cash and is 100% vested
69
Which of the following methods is MOST commonly used to correct a failed
discrimination test?
Decrease the ADP/ACP of the HCE
70
Which of the following tests is used to determine the extent to which a highly
compensated elective contribution may EXCEED a non-highly compensated elective
contribution?
ADP
71
If the non-highly compensated eligible participants in a 401(k) plan have an actual
deferral percentage of 3.4%, the highly compensated eligible participants are allowed
an actual deferral percentage of no more than___________.
5.4%
72
If the ADP ratio for the highly compensated employees is to great too pass either test, it
may be lowered by all of the following EXCEPT:
refund of employer profit-sharing contributions for highly compensated employees.
73
If the plan fails the actual contribution percentage test, it can be corrected without
penalty by:
distributing the excess with earnings attributable to the excess.
74
If an excess deferral (violation of the $23,000 for 2024 (as indexed) 402(g) limit as
adjusted) is not corrected by returning it to the participant until after April 15 of the year
following the year of the excess deposit:
the employee must pay tax on the excess deferral in both the year of the excess
deferral and the year of the return.
75
When the ADP test is failed because the highly compensated contributions average 9%
and the non-highly compensated contributions average 6%, which of the following is
NOT an acceptable correction?
Refund an average of 3% to the highly compensated and 1% to the non-highly
compensated.
76
Qualified non-elective contributions are used:
a percentage may be utilized in both the ADP test and ACP, but the total may not
exceed 100%.
77
Employee contributions to a retirement plan:
must immediately vest at 100%.
78
In a 401(k) plan:
matching contributions are not required for plan qualification.
79
Which of the following kinds of plans may NOT include a 401(k) feature?
Traditional Defined Benefit Pension Plan
80
Which of the following BEST describes the tax treatment of a lump sum distribution
made in the form of employer securities?
The cost basis of the securities is included as income upon distribution, with any net
unrealized appreciation eligible for capital gains treatment at the time the securities
are sold.
81
Employee Stock Ownership Plans:
have special rules regarding loans to the plan itself.
82
Certain investment diversification rights apply to a participant in an ESOP EXCEPT:
who is at least age 55 and has been a participant in the plan for at least 10 years.
83
The value of employer securities in an ESOP must be determined:
at least annually, but more frequently, if purchased from a disqualified person
84
Unallocated stock in an ESOP must be voted
by the trustee in a manner calculated to be in the best interests of the plan
participants.
85
All of the following statements about ESOPs are true EXCEPT:
they are not subject to top-heavy rules
86
When a bank lends money to an ESOP to be used to acquire employer's stock, what
percentage of the interest earned on that loan may be excluded from the bank's taxable
income?
50%
87
When dividends are posted to a leveraged ESOP, it is MOST common to:
pay down the outstanding loan.
88
An ESOP must be substantially invested in stock of the employer. The proxies for the
allocated shares for a publicly traded company must be voted by:
the plan participants.
89
Which of the following types of businesses can NOT have an ESOP of stock bonus
plan?
Professional partnership
90
Stock bonus plans and ESOPs share many characteristics, but ESOPs have some
unique characteristics. All of the following characteristics are unique to an ESOP
EXCEPT?
Tax free treatment of appreciated compnay stock distributed to a retiree
91
All of the following are true requarding an ESOP or stock bonus plan EXCEPT?
Employee's must receive distributions "in kind'
92
The stock of ABC Corporation is not publicly traded. ABC has an ESOP. B. Smith, a
participant of the plan may expect or demand all of the following EXCEPT?
An below market rate loan from the plan
93
Jackson Kerpatrik, age 40, is an employee of Beason Industries. Beason has an
ESOP. This year, the ESOP purchased stock for $500 and allocated it to Jackson’s
account. Twenty five years from today, Jackson retires and receives this stock in a
lump sum distribution. At the time of his retirement, the stock that was allocated to
Jackson’s account this year is worth $5000. Jackson pays taxes on:
$500 at time of distribution, gains are taxed when the stock is sold
94
In which of the following plan types does the 10% limitation for holding qualifying
employer securities NOT apply?
ESOP
95
For the self-employed owner of an unincorporated business, advantages of a Keogh
plan over a Traditional IRA include which of the following:
Contribution limits for a Keogh are higher than limits for a traditional IRA
96
The "earned income" that a self-employed person uses to calculate a Keogh plan
deduction is:
Net business income including the deduction for the Keogh plan less one-half
self-employment tax
97
The feature that sets a Keogh plan apart from other plans is that:
It is established only by self employed individuals, such as sole proprietorship or
partnership
98
Which of the following types of plans is MOST suitable for a self-employed person who
wishes to save for retirement and maximize tax deferral?
Solo 401(k)
99
All of the following statements about simplified employee pensions (SEPs) are true
EXCEPT:
annual employer contributions are mandatory.
100
All of the following are true of simplified employee plans EXCEPT:
participant loans are allowed up to 1/2 the vested account balance.
101
In a SIMPLE 401(k), an employer must make a matching contribution of up to _______
for those employees who make deferrals.
3%
102
In a SIMPLE 401(k), an employer may opt out of a matching contribution formula;
however, the employer must make a _______ non elective contribution for all eligible
employees regardless of deferrals.
2%
103
In a SIMPLE 401(k), employees matching contributions are _______ vested after the
first year.
100%
104
In a SIMPLE 401(k) Plan, the maximum deferral an employee may make in a year for
2024 (as indexed) is_______.
$16,000
105
In a SIMPLE IRA Plan, the employer is generally required to match deferral dollars;
however, the employer may elect, in advance, a lower match of as little as _________
of compensation in any 2 of a 5 year period.
1%
106
In a SIMPLE IRA, the maximum annual addition limit is _________ of pay up to
$16,000 for 2024 (as indexed)
100%
107
The early withdrawal penalty from a SIMPLE IRA Plan during the first two years of an
employee's participation is _________.
25%
108
In a SIMPLE IRA Plan, the employer may elect not to have matching contributions;
however, the employer must make a _________ non elective minimum contribution for
all eligible participants.
2.0%
109
Which of the following is true about a SIMPLE IRA?
There is a 25% early distribution penalty for the first two years of participation
110
Premature distribution penalties do NOT apply to participants in a qualified plan, who
separate from service after attaining age _____ .
55
111
The required pre-retirement death benefit is NOT required to be paid to the surviving
spouse until the:
participant would have been entitled to payment had it not been for death.
112
There is a 10% additional income tax on distributions from qualified plans which are
"premature." Certain exceptions apply. Which of the following is NOT an exception?
An employee is at least age 45 with at least one dependent child in a college or
university.
113
Which of the following acceptable reasons for a distribution from a retirement plan
results in a 10% penalty if funds are not rolled over?
Separation from service and under age 55
114
Premature distribution penalties do NOT apply to an individual receiving payment:
in the form of a life annuity
115
The following distributions are all "eligible roll over distributions" (i. e., subject to UCA
92 withholding) EXCEPT:
required minimum distributions.
116
In which of the following situations will a penalty be assessed for a premature
distribution of funds from a qualified plan?
Donald is terminated at age 58 and invests his plan account balance in a fast food
franchise.
117
A participant cannot, without written spousal consent, take from a qualified plan a
lump-sum distribution that is in excess of:
$5,000.
118
In order to avoid being considered a distribution and therefore taxed accordingly, a
rollover from a qualified plan to another qualified plan or to an IRA must be
accomplished within:
60 days.
119
Distributions from a qualified plan must begin:
by April 1 following the year the participant reaches age 73.
120
A participant may automatically receive a distribution of his vested account balance
without early withdrawal penalty upon:
disability, regardless of age
121
If a benefits payment is made directly to a plan participant and is eligible for a rollover,
what percentage of the benefit payment is the trustee required to withhold for federal
tax?
20%
122
Which of the following is NOT a DOL or IRS sanction for the violation of a participant
loan program?
The participant is prohibited from taking a plan loan for one year.
123
A loan agreement to a participant should include all of the following provisions
EXCEPT:
contribution posting methods.
124
A participant is terminating employment and has an outstanding loan. If he takes a
distribution of his vested account balance, the tax ramifications of the outstanding loan
are:
a 20% withholding tax on the entire balance.
125
Excluding mortgage loans, the MAXIMUM repayment period for a loan from a qualified
plan is how many years?
5
126
Which of the following loans is considered a prohibited transaction?
Loan to a participant with an outstanding loan balance of $50,000
127
In addition to IRS provisions for operations restrictions on plan loans, which of the
following describes an operational restriction that may be imposed by a plan sponsor?
The minimum loan is $1,000, and loans are limited to no more than one outstanding
loan per participant.
128
If a qualified plan has a provision for participant loans, a participant with a vested
balance of $70,000 can borrow a MAXIMUM of:
$35,000.
129
The borrowing limits imposed on participant loans from a qualified plan require that the
loan amount:
must be the lesser of $50,000 or 50% of the participant's vested balance.
130
The taxpayer must file IRS form/schedule ___ with the taxpayer’s tax return for each
year that a non-deductible IRA contribution is made:
Form 8606
131
Which form of retirement contribution allows participants to make after-tax contributions
and then take those contributions and earnings completely tax-free at retirement?
Roth
132
An individual taxpayer has filed for an extension. The contribution to his/her Roth IRA
must be made by:
April 15.
133
One may rollover the proceeds from an IRA (for the benefit of the same person)
tax-free as long as the transaction occurs within
60 days.
134
What is the earliest age at which an individual can receive distributions from an IRA
without penalty?
59 1/2
135
Which of the following is NOT a permitted investment for an IRA?
Diamonds
136
The concept of the Individual Retirement Arrangements (IRAs) was the product of the:
Employee Retirement Income Security Act of 1974 (ERISA).
137
The distributions from a Roth IRA/401(k) that have been in the Roth for 5 years, and
the individual reaches normal retirement age (65) and then starts to withdraw are taxed
in which fashion?
they are not taxed
138
To be a "qualified distribution", namely distribution of contributions and earnings, from a
Roth IRA/401(k) which of the following conditions must be met?
After 5 year holding period and 59 1/2
139
If an employee has a Roth feature in their 401(k) plan, it is subject to the required
minimum distribution rules. The employee can avoid this by doing which of the
following?
Rollover the Roth funds to a Roth IRA
140
If an individual has a Roth IRA that was created in 2014, and they are currently 59 1/2,
they could withdraw funds from the Roth IRA to pay for the colledge education of a
dependent grandchild:
without a 10% penalty and without paying taxes
141
Which of the following, if any, make a Roth different from a Traditional IRA?
The initial investment and earnings can be withdrawn tax-free if certain conditions
are met.
142
Which of the following is true of Roth IRA contributions?
It is not tax deductible.
143
What does IRA stand for?
Individual Retirement Arrangement
144
Borrowing from an IRA:
is not allowed.
