Quiz misses Flashcards
Luna Autobody wants to establish a pension plan. They want the employee’s to bear the investment risk and favor older employees. Which plan should they establish?
Since they want to establish a pension plan where the employee’s bear the investment risk and favors older employees they should establish a target benefit plan.
An age based profit sharing plan is not a pension plan - it is a profit sharing plan.
The employer bears the risk on the cash balance plan.
The money purchase plan favors younger employees.
Shane’s Rib Shack has a Target Benefit Plan. They have 10 employees with the following compensations: Employee Compensation
1- $300,000, 2- $100,000, 3- $75,000, 4- $50,000,
5- $50,000, 6- $50,000, 7- $50,000, 8- $25,000,
9- $25,000, 10- $20,000
Based on the actuarial table that was established at the inception of the plan they should fund the plan with $210,000. What is the maximum deductible contribution that can be made to the plan?
A target benefit plan is a defined contribution plan - so the maximum deductible contribution is 25% of the total covered compensation.
Remember to limit employee comp to the $265,000 covered compensation limit.
The max covered compensation of all employees is $710,000. Thus the maximum deductible limit is $177,500 ($710,000 x 25%).
The actuarial table amount is irrelevant because this a defined contribution plan.
Which of the following accurately describes a qualified group life insurance plan?
The plan must benefit 70% of all employees, or a group consisting of 85% non-key employees, or a non-discriminatory class, or meet the non-discrimination rules of Section 125.
Employees who can be excluded are: those with fewer than 3 years service, part-time / seasonal, non-resident aliens, or those covered under a collective bargaining unit.
The minimum group size is 10.
if using a non-discriminatory classification, will have a bottom tier with benefits no less than 10% of the top tier and no more than 250% increase between tiers.
Jack and Debra file for divorce after 31 years of marriage. The court-ordered division of property included an award to Debra of 1/2 interest in Jack’s defined benefit pension. This Qualified Domestic Relations Order (QDRO) would not include what option?
QDRO cannot force a plan to do anything which is not provided as a benefit in the plan document to all other employees. The QDRO may not mandate an increase in benefits under the plan.
so, it could not force Jack to receive an immediate lump sum distribution from the plan and roll her one-half share over to an IRA even though the plan allows only monthly income benefits at normal retirement age.
What is the maximum a new SIMPLE IRA plan in the current year with the maximum match for this year can contribute
100% of income up to $12,500 + 3% match from employer = $900 – total = $13,400
What are qualified plan tests for eligibility
Plans cannot require more than 1 year of service, and an age higher than 21. The plan can require a 2-year waiting period if there is immediate 100% vesting in the plan.
Ratio percentage test - Plan must cover a percentage of non-highly compensated employees that is at least 70% of the percentage of highly compensated employees covered.
Average benefits test - Plan must benefit a non-discriminatory employee class with benefits of at least 70% of the benefit provided highly comp’d employees.
50/40 test - 50 employees must participate, or 40% of all employees, or 2 employees out of 3 if there are only 3 employees.
Which statements accurately reflect the provisions for a self-employed owner (partnerships and sole proprietorships) in a small business pension plan?
I. Loans are available to owners and employees alike, if each has equal right and terms of the loans.
II. Contributions for owners are based on net earnings rather than wages.
III. Contributions for employees (as percentage of salary) are greater than for the self-employed owner (as a percentage of profit).
Owners must do a conversion [ee contr rate ÷ (1+ ee contr rate)] e.g., .15 ÷ (1+.15) = .13043 so owner’s contribution as a percentage of profits is lower than the employees’ percentage of wages earned.
IV. Lump-sum distribution tax treatment allowed for employees, but not for owners, except in the case of disability.
The maximum retirement benefit a participant in a target-benefit plan will actually receive depends on
Value of the participant’s account at retirement.
other factors help to increase the final account value:
1 Initial actuarial computation according to the plan’s formula
2 Amount of contributions determined in reference to the targeted benefit
3 Maximum annual additional amounts
June and Bud, both 40 years old, are not covered by a qualified retirement plan. Bud, trying to maximize their IRA deduction, put $11,000 into an IRA with June as the beneficiary on December 15 of the current year. What best describes the result of this transaction?
This question indicates an IRA in only Bud’s name. Maximum contribution is $5,500 plus any applicable catch-up provisions. Amounts contributed over that level are considered excess contributions and subject to a 6% penalty until taken out. The 6% penalty could have been avoided if the excess contribution was withdrawn prior to the original filing deadline without extension.
Cafeteria plans have what characteristics
1 Must offer a choice between at least one qualified “pre-tax” benefit and one non-qualified “cash” benefit.
2 Medical Flexible Spending Accounts (FSAs) can reimburse medical expenses not covered by insurance for the participant and all dependents.
3 Changes in election amount during the plan year can only occur with a “qualifying change in family status.”
4 allow salary reductions which are taken from an employee’s salary before Federal and State withholding tax as well as Social Security and Medicare taxes (FICA).
Larry and Terry, who are married and are ages 35 and 36, both contribute the maximum to a TSA at their schools where they teach. They also want to make contributions to their IRAs. Their salaries are $50,000 each, after their TSA contributions are subtracted. How much can they each contribute to their respective IRAs in the current year?
Everyone (with earned income) can make a $5,500 contribution to an IRA in 2015, without respect to income or “active participation” status. In some cases, however, phaseouts may directly impact the deductibility of these contributions depending on income levels.
Which of the following is pertinent when an employee is faced with the decision to stay with the old pension formula or to switch to the new cash balance plan formula?
I. Retirement expectations.
II. Intent to begin receiving benefits.
III. Current value of accrued benefits.
IV. Possibility that needs may change.
A SEP-IRA is a form of defined contribution plan (although not a qualified plan). Which of the following apply to BOTH the SEP-IRA and a traditional defined contribution plan?
1 Requires a definite, written, non-discriminatory contribution allocation formula.
2 Contributions cannot discriminate in favor of highly compensated employees.
3 Affiliated service group rules apply.
4 Top-heavy rules apply to both.
5 Both plans can integrate with Social Security (sometimes called permissible disparity). (Note: 5305-SEP does not allow permissible disparity.)
6 Employer contributions are not subject to any payroll related taxes.
