Plan Options for Tax Exempt and Governmental Employers

Question 1

Which of the following organizations is not eligible to sponsor a 403 (b) plan?
a. community college system
b. baptist hospital
c. elementary school controlled by the church
d. chamber of commerce

Answer 1

d - chamber of commerce
Chambers of commerce do not qualify under IRC 501 (c) (3); instead they qualify as tax -exempt under IRC 501 (c) (6)

Question 2

Which of the following plans cannot be sponsored by a public school district?
a. 457 (b) plan
b. 403 (b) (9) Retirement Income Account
c. 401 (a) defined contribution plan
d. 403 (b) plan

Answer 2

b - 403 (b)(9) Retirement Income Account
403(b) (9) retirement income accounts can be established only by churches, or other religious organizations determined to be 414 (e) religious organizations

Question 3

Elective deferral - only 403 (b) plans sponsored by 501(c) (3) organizations (other than churches) may be exempt from ERISA if they satisfy the requirements for exclusion from ERISA based on limited employer involvement.
True
False

Answer 3

True
For plans with employer contributions and plans under which the employer’s involvement in the operation of the 403(b) plan exceeds certain limitations, the requirements of ERISA will apply. 501 (c)(3) organizations that make employer contributions are subject to ERISA and to the non-discrimination rules of IRC 403 (b)(12) (A) (i)

Question 4

Which of the following government entities may sponsor a 403(b) plan?
a. local city council
b. U.S. Department of Education
c. local police department
d. state public university

Answer 4

state public university
Only governmental entities that are public education entities can sponsor a 403(b) plan, except for certain governmental entities that are also 501(c) (3) entities. Federal agencies cannot sponsor a 403(b) plan

Question 5

The Council on Aging sponsors a SIMPLE IRA. Which of the following plans could the Council adopt in addition to the SIMPLE IRA?
a. 401 (a) defined benefit plan
b. 403 (b) plan
c. 457 (b) top hat plan
d. 401(k) plan

Answer 5

457 (b) top hat plan
An entity that has adopted a SIMPLE IRA cannot maintain another qualified plan or 403(b) plan. It can however, maintain a 457(b) plan

Question 6

Which of the following plans can be adopted by an employer who has an existing SIMPLE IRA?
a. 403(b) plan
b. 401(k) plan
c. a non qualified deferred compensation plan
d. 401(a) defined benefit plan

Answer 6

A non qualified deferred compensation plan
An entity that has adopted a SIMPLE IRA cannot maintain another qualified plan or 403 (b) plan. It can however, maintain a non qualified deferred compensation plan

Question 7

Which of the following statements regarding the elective deferral component of ERISA 403(b) plans and 401(k) plans is true?
a. both plan types are subject to non discrimination testing
b. SPDs must be distributed to eligible employees
c. an exemption to ERISA exists for both plan types if the plans only permit elective deferrals
d. both plans are required to hold plan assets in trust

Answer 7

SPDs must be distributed to eligible employees
The elective deferral component of 403 (b) is not subject to NDT, it is subject to universal availability. 403 (b) plan assets are not held in a trust. There is no exemption from ERISA for a 401 (k) plan that only permits elective deferrals an has limited employer involvement. 403(b) plans with limited employer involvement are exempt from ERISA

Question 8

Which of the following statements regarding characteristics of both ERISA 403(b) and ERISA 401(k) plans is NOT true?
a. Form 5500 filings are required
b. Employer matching contributions are subject to ACP testing unless the plan uses a safe harbor plan design
c. employer discretionary contributions are permitted
d. Independent contractors who perform work for the employer may participate in the plan

Answer 8

Independent contractors who perform work for the employer may participate in the plan
Independent contractors are not employees and cannot adopt a 403(b) as as sole proprietor because they are not an entity that is eligible to sponsor a 403(b) plan

Question 9

A county water district, which is a government entity, is not eligible to sponsor a 403(b) plan
True
False

Answer 9

True
Government entities other than public schools and those also qualify under 501 (c) (3) are not eligible to sponsor 403 (b) plans

Question 10

A local Woman’s Club with a limited field of membership may adopt a 403(b) plan
True
False

Answer 10

False
Only 501(c)(3) organizations, public education employers, churches and ministers are eligible to sponsor 403(b) plans. An organization with a limited field of membership cannot be a 501(c)(3) or