Other Plan Types

Question 1

457 (b) plans sponsored by non governmental tax-exempt entities permit only elective deferrals; employer contributions are not permitted
True
False

Answer 1

False
457(b) top hat plans may permit both employer contributions and elective deferrals

Question 2

Which of the following is NOT a distributable event in a governmental 457(b) plan?
a. severance of employment
b. attainment of age 55
c. one time in service small account balance distribution
d. attainment of age 70 1/2

Answer 2

Attainment of age 55 is not a distributable event from a governmental 457(b) plan

Question 3

Governmental 457 (b) plans are not permitted to use rabbi trusts to hold plan assets
True
False

Answer 3

True
Governmental 457(b) plans must hold plan assets in a traditional trust similar to qualified plans. These plans cannot use rabbi trusts (which offer limited protection to employees)

Question 4

Participants may roll over 457(f) plan distributions into IRAs
True
False

Answer 4

False
Distributions from a 457(f) plan cannot be rolled over into an IRA

Question 5

457(f) plans and 457(b) plans have the same distribution requirements
True
False

Answer 5

False
Distribution restrictions are different in these two plan types. Unlike qualified plans or 457(b) plans that are subject to taxation when amounts are paid out or made available to participants, the proceeds from 457 (f) plans are taxed when there is no substantial risk of forfeiture to the participant

Question 6

A 457 (b) plan can only permit employer contributions
True
False

Answer 6

False
457(b) plans may permit elective deferrals and or employer contributions

Question 7

What is the current year end taxable amount of the 457 (f) plan account?
1/1 40,000 6/30 42,000 12/31 45,000
Ph is vested earlier of death, normal retirement, 62, separation of service
Ph dies on September 1, 2 months before attaining age 62
a. 0
b. 40,000
c. 42,000
d. 45,000

Answer 7

45,000
When a participant’s account is no longer subject to a substantial risk of forfeiture, his vested account balance becomes fully taxable. Since this occurred when he died, the year end account value of 45,000 is taxable

Question 8

Includible compensation for a mid year retiree in a 457(b) plan includes the portion of the previous year’s income necessary to capture a full 12 months of salary
True
False

Answer 8

False
Only includible compensation for a 403(b) plan is based on the previous 12 months of compensation

Question 9

A DROP is an expensive way to keep employees from taking early retirement
True
False

Answer 9

True
DROPS are expensive ways to keep employees from taking early retirement

Question 10

Under a DROP, an employees’ account is credited with a certain dollar amount which is paid to the employee at the end of the DROP period
True
False

Answer 10

True
Under a DROP an employee’s account is credited with a certain dollar amount which is paid to the employee at the end of the DROP period

Question 11

ORPs are typically established by small non governmental tax exempt employers
True
False

Answer 11

False
ORPs are established by governmental employers, not nongovernmental tax-exempt employers

Question 12

Determine the ministers maximum elective deferral
Minister is age 55 compensation is 50,000
The church will not make any ER contributions
Minister contributed 95,000 in plan in prior years
Minister contributed 3,000 toward the 15 year catch-up
a. 19500
b. 22500
c. 25500
d. 26000

Answer 12

26000
the 402 g limit 19,500
+ age 50 catchup 5,500
not eligible for 15 year rule 18 years of service * 5,000 = 90,000 and since he already contributed 95,000 this limit has been exceeded

Question 13

Churches that do not elect ERISA coverage must maintain written plan documents from 403(b) (1) annuity plans but not from retirement income accounts
True
False

Answer 13

False
Churches that do not elect ERISA must maintain a written plan for 403(b) (9) retirement income account plans

Question 14

Non governmental tax exempt entities have an annual reporting requirement to file an abbreviated form 5500 for their 457 (b) plans
True
False

Answer 14

False
Non governmental tax exempt entities are not required to file form 5500s for their 457(b) plans if they have met the one time filing requirement with the DOL

Question 15

Determine the current year end amount subject to taxation on the participant 457 (f) account
1/1 25,000 6/30 28,000 12/31 29,000
Vesting is the earlier of death NRA 62 seperation from service
Attains age 62 and works x years
No distributions

Answer 15

29000
When a participants account is no longer subject to a substantial risk of forfeiture, his account balance is fully taxable

Question 16

A participants 457(f) account balance is includible as income in the year following the year in which there is no substantial risk of forfeiture
True
False

Answer 16

False
457(f) account balance is includible as income in the year in which there is no substantial risk of forfeiture. The taxability is not delayed into the next tax year

Question 17

By making contributions to a 401(a) plan, an employer can help a participant avoid excess deferrals in the 457 (b) plan
True
False

Answer 17

True
The annual contribution limit in a 457(b) is lower than the limit in 401(a) plan. Many 457 (b) plans only allow elective deferrals. A participant can then maximize deferrals in the 457 (b) plan and the employer can maximize contributions to the 401(a) plan

Question 18

Participants may immediately withdraw any employer contributions made to an IRC 401 (a) plan
True
False

Answer 18

False
Participants in governmental IRC 401 (a) plans are subject to distribution restrictions. They are not permitted to take distributions at any time

Question 19

Pick-up contributions can be utilized by all tax-exempt and government entities
True
False

Answer 19

False
Pick-up contributions are only permitted for plans sponsored by government entities

Question 20

Distributions from a 403(b)(1) annuity to a retire board member of a church are tax free if deemed by the church to cover housing costs
True
False

Answer 20

False
The exclusion from income for housing costs only applies to members of the clergy