Quizzes Flashcards
The are primarily four parties interested in retirement plans and employee benefits: employees, employers, institutions (and their professionals), and the government. Which of the following is not considered an Interested Institution?
A. Debt Relief and Consolidation Agencies
B. Banks
C. Mutual Funds
D. Insurance Companies
A. Debt Relief and Consolidation Agencies
TRUE OR FALSE:
Since the 1980’s the number of Defined Benefit Plans has risen, and since the 1970’s the number of Defined Contribution plans has fallen. This is likely attributed to the higher cost, longevity risk, and potential funding shortfalls associated with defined contribution plans.
FALSE
Which vesting schedule provides an employee full rights to the plan assets immediately upon the passage of a certain number of years of service, usually three years?
A. Graduated Vesting Schedule
B. Accelerated Vesting Schedule
C. Cliff Vesting Schedule
D. Lump Sum Vesting Schedule
C. Cliff Vesting Schedule
TRUE OR FALSE:
Additional qualified plan annual contributions, above and beyond the standard contribution limits available to all eligible participants, are allowed for individuals aged 50 or over.
TRUE
Which of the following is not true of qualified plans?
A. Costs of operating the plan are considered to be one of the disadvantages.
B. Lump-sum distributions may qualify for special taxation.
C. Qualified plans offer tax benefits to both the employer and the employee.
D. Ownership is permitted for the account owner and up to one joint owner.
D. Ownership is permitted for the account owner and up to one joint owner.
TRUE OR FALSE:
Under the rules of the General Safe Harbor Coverage Test, an employer consists of 70 non-highly compensated (NHC) employees and 80 highly compensated employees. Of the 70 NHC employees, 50 are nonexcludable. 35 of the nonexcludable, NHC employees benefit from the company retirement plan. Does this plan pass the General Safe Harbor Coverage Test? Select True for “Yes, it passes.” Select False for “No, it does not pass.
TRUE
The maximum employee compensation that may be considered for contributions to qualified plans or the accrual of benefits to a qualified plan is known as:
A. Maximum Allowable Compensation
B. Covered Compensation Limit
C. Considerable Contribution Limit
D. Excludable Compensation
B. Covered Compensation Limit
TRUE OR FALSE:
If a qualified, defined benefit plan is considered top-heavy, the plan must use accelerated vesting schedules rather than the standard vesting schedule.
TRUE
Who assumes investment risk in a Defined Contribution plan?
A. Employer
B. Insurance Companies
C. Employee
D. Banks
C. Employee
According to the Financial Independence Retire Early (FIRE) Movement, an alternative to the traditional concept of retirement, one is considered financially independent when:
A. They no longer have outstanding debt.
B. Their accumulated savings equal twenty-five times their estimated annual expenses.
C. They attain their Normal Retirement Age (NRA) as defined by the Social Security Administration.
D. Their estimated annual expenses equal twenty-five times their accumulated savings
D. Their estimated annual expenses equal twenty-five times their accumulated savings
Which of the following is NOT true about qualified pension plans?
A. They have an annual funding requirement.
B. Investment in employer securities is unlimited, meaning up to 100% of plan assets.
C. Life insurance within pension plans is allowed but limited.
D. All of the above are true about qualified pension plans.
B. Investment in employer securities is unlimited, meaning up to 100% of plan assets.
TRUE OR FALSE:
Actuaries are required for all pension plans.
FALSE
TRUE OR FALSE:
One main differentiator between defined benefit and defined contribution plans is that the former, defined benefit plans, place investment risk on the employer.
TRUE
Each of the following actuarial assumptions are directly related to pension plan cost, and expected increases in these assumptions increase plan cost EXCEPT:
A. Wages
B. Inflation
C. Expected Mortality
D. Life Expectancy
C. Expected Mortality
Which of the following plans are covered by the Pension Benefits Guarantee Corporation?
A. Defined benefit and target benefit pension plans
B. Cash balance and target benefit pension plans
C. Money purchase and defined benefit pension plans
D. Defined benefit and cash balance pension plans
D. Definied benefit and cash balance pension plans
TRUE OR FALSE:
Defined contribution pension plans may only reduce use participant forfeitures to reduce plan cost.
FALSE
ABC Tutoring is establishing a defined benefit pension plan this year. Alice, age 35, is a Lead Tutor for ABC Tutoring and has worked for the company for 10 years. Alice plans on retiring in 30 years and has no intent to leave ABC Tutoring before retirement. Is ABC Tutoring able to give Alice credit for her prior years of service, yes or no? If yes, how many years of service credits would Alice have at her target retirement age?
A. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 40 years of service credits.
B. No, defined benefit pension plans may not give credit for prior service when first establishing the plan.
C. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 30 years of service credits.
D. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 35 years of service credits.
A. Yes, defined benefit pension plans may give credit for prior service when first establishing the plan. Alice would have 40 years of service credits.
TRUE OR FALSE:
Defined benefit and cash balance pension plans may use either the excess or offset methods of Social Security integration while target benefit and money purchase pension plans may only use the excess method.
TRUE
Defined benefit pension plan formulas include which of the following?
I. Flat amount formula
II. Lifetime credit formula
III. Unit credit formula
IV. Variable percentage formula
A. I and IV only
B. I and III only
C. I, II, and III only
D. None of the above
B. I and III only
A defined benefit pension plan formula is as follows: 3% x Years of Service x Average of Highest Five Years of Salary. This is known as a:
A. Flat percentage formula
B. Flat amount formula
C. Salary based formula
D. Unit Credit Formula
D. Unit Credit Formula
TRUE OR FALSE:
Contributions to qualifying retirement plans follow the IRC matching principle of the inclusion of income and the deduction of the expense at the time.
FALSE
TRUE OR FALSE:
The employer and employee are each responsible for their share of payroll taxes on the employee’s compensation.
TRUE
TRUE OR FALSE:
Distributions from a qualified retirement plan are generally taxable as ordinary income.
TRUE
TRUE OR FALSE:
ERISA protects qualified plan assets from all creditors.
FALSE
TRUE OR FALSE:
One disadvantage of a qualified plan is that it does not protect the employee from the employer’s wrongdoings.
FALSE
TRUE OR FALSE:
A lump sum distribution from a qualifying retirement plan may be eligible for special income tax treatment.
TRUE
TRUE OR FALSE:
Using the standard eligibility rules, an employee must be allowed to enter a qualified plan on the day after they attain the age of 21 and have completed one year of service.
FALSE (should be OR)
TRUE OR FALSE:
If a company allows the two-year eligibility rule, it can still require the employee to attain the age of 21 before being eligible for participation in the qualified retirement plan.
TRUE
TRUE OR FALSE:
Tax exempt educational institutions can require participants to attain the age of 26 before being eligible to participate in the qualifying retirement plan.
TRUE
TRUE OR FALSE:
XYZ sponsors a 401(k) plan for its employees. It can include a two-year service period for employees and the plan.
FALSE
TRUE OR FALSE:
Qualified plans can exclude employees who are non-resident aliens that do not perform services in the US.
TRUE
TRUE OR FALSE:
A qualifying plan can exclude (as a class) all women from the plan.
FALSE
TRUE OR FALSE:
A person who earns $120,000 during 2023 is highly compensated for the 2024 plan year.
FALSE
TRUE OR FALSE:
Bobbie’s grandfather is the majority owner of Apex Inc. and it’s CEO. He gave Bobbie 6% of Apex and a job in the mail room making $23,000 last year. Bobbie should be qualified as a non-highly competent employee due to his income.
FALSE
TRUE OR FALSE:
If Andreea’s compensation is $200,000, then she will always be classified as a highly compensated employee.
FALSE
TRUE OR FALSE:
A retirement plan is established effective January one 2023. Sam was a 3% owner of the plan sponsor during calendar year 2022 and a 7% owner during 2023 Sam is an HCE for the 2023 plan.
TRUE
TRUE OR FALSE:
Employee contributions to a qualified retirement plan are always 100% vested.
TRUE
TRUE OR FALSE:
Employees who attain the normal retirement age as defined by their qualified retirement plan must be fully vested in that retirement plan.
TRUE
TRUE OR FALSE:
An employee who works 1000 hours in the first six months attain one year of service upon completion of the 1000 hours.
FALSE
TRUE OR FALSE:
The standard vesting schedule for a cash balance plan is the three-year cliff method.
TRUE
TRUE OR FALSE:
Jacques works for Hiral Industries, which sponsors a 401(k) plan with a 50% match and a 2-to-6 year graded vesting schedule. Jacques the first $30,000 over the last three years and has received $15,000 in matching contributions over that same time if he leaves today after three years with Hiral, and the balance in the account is $60,000 then he will forfeit $12,000 of the match and associate earnings.
TRUE
TRUE OR FALSE:
An officer with compensation of $150,000 is a key employee.
FALSE
TRUE OR FALSE:
Qualified defined benefit plans that are considered top-heavy must use a 3 to 6 year graduated vesting schedule or a three-year cliff investing schedule.
FALSE
TRUE OR FALSE:
The covered compensation limit for 2023 is $330,000.
TRUE
TRUE OR FALSE:
The defined benefit plan limit is $265,000 for 2023.
TRUE
TRUE OR FALSE:
The defined contribution plan limit per participant is the lesser of 25% of compensation or $66,000 for 2023.
FALSE
TRUE OR FALSE:
Profit, sharing plans must be established by contributions made by the due date of the tax return, including extensions for the tax year for which the employer wants to make contributions.
TRUE
TRUE OR FALSE:
A pension plan can be funded using 100% employer securities.
FALSE
TRUE OR FALSE:
A profit-sharing plan is a plan established and maintained by an employer to provide participation in the profits of the company solely for officers and shareholders.
FALSE
TRUE OR FALSE:
Permitted disparity is a method of allocate plan contributions that allows employer to make contributions only to highly compensated in individuals because they do not receive Social Security.
FALSE
TRUE OR FALSE:
Age-based profit-sharing plans use both age and compensation as the basis for allocating contributions to employee accounts.
TRUE
TRUE OR FALSE:
New comparability plans are flexible plans that allow the employer to allocate all benefits to the owners.
FALSE
TRUE OR FALSE:
A proper sharing plan can require the participants to wait three years before entering the plan but all contribution must be 100% vested.
FALSE
TRUE OR FALSE:
Profit-sharing plans must use a five-year cliff vesting schedule or a 3-to-7 year graduate vesting schedule.
FALSE
TRUE OR FALSE:
Profit-sharing plans may permit in-service withdrawals after a participant has attained two years of service in the plan.
TRUE
TRUE OR FALSE:
A tax-exempt organization cannot establish a 401(k) plan.
FALSE
TRUE OR FALSE:
Employers can establish 401(k) plans with minimal expense.
TRUE
TRUE OR FALSE:
Government entities cannot establish 401(k) plans today.
TRUE
TRUE OR FALSE:
The 401(k) eligibility rules are not the same as profit-sharing plans.
TRUE
TRUE OR FALSE:
A 401(k) must have at least four entrance dates.
FALSE
TRUE OR FALSE:
The employee 401(k) plan deferral limit is indexed for inflation after 2006.
TRUE
TRUE OR FALSE:
Employee deferral contributions to 401(k) plans are subject to payroll taxes at the time of contribution.
TRUE
TRUE OR FALSE:
An employer is not required to deposit the employee 401(k) plan deferral contributions until the 15th day of the month following the deferral.
FALSE
TRUE OR FALSE:
As a maximum an individual age 50 or older can defer $30,000 in 2023 to 401(k) plan.
TRUE
TRUE OR FALSE:
A negative election is an election. The employee can make that state that they want to participate in the plan.
FALSE
TRUE OR FALSE:
Matching contributions vest at either a 2 to 6 year graduated investing schedule or a five-year cliff vesting schedule.
FALSE
TRUE OR FALSE:
A catch up contribution can allow an eligible employee to for more than the annual audits limit of $66,000 for 2023.
TRUE
TRUE OR FALSE:
An employee can contribute the maximum deferral limit of $22,500 to the 401(k) pretax account and another $22,500 to the Roth account if both accounts are available on the plan.
FALSE
TRUE OR FALSE:
The elective deferrals the highly con compensated employees may be eliminated based on the elective defaults of the non-highly compensated employees.
TRUE
TRUE OR FALSE:
All eligible employees (each 21 and one yard service) are included in the calculations for the ADP test, including those employees who elect not to defer.
TRUE
TRUE OR FALSE:
If a CODA plan fails the ADP test, the plan will be terminated.
FALSE
TRUE OR FALSE:
Orange Co. has a non-safe harbor 401(k) plan with five NHCEs who defer 4%, 0%, 10%, 0%, and 6%. As a result, the HCEs are limited to a deferral of 8%.
FALSE
Which of the following is not true regarding profit-sharing plans?
A. Profit-sharing plans are established and maintained by the individual employee.
B. Profit-sharing plans allow employees to derive benefits from profits of the company.
C. Profit-sharing plans cannot discriminate in favor of officers and shareholders.
D. Profit-sharing plans provide a definite predetermined formula for allocating. The contributions made to the plan among the participants and for distributing the funds accumulated under the plan.
A. Profit-sharing plans are established and maintained by the individual employee.
Which of the following statements is true?
A. Profession plans may not offer in-service withdrawals.
B. Pension and profit-sharing plans are subject to mandatory annual funding requirements.
C. Profit-sharing plans allow annual employer contributions up to 25% of the employer’s covered compensation.
D. The legal promise of a profit-sharing plan is to pay a pension at retirement.
C. Profit-sharing plans allow annual employer contributions up to 25% of the employer’s covered compensation.
Andi, the 100% owner of Andi’s Day Care, a C-corporation, would like to establish a profit-sharing plan. Andi’s Day Care’s tax year and July 31 to coincide with the school year. What is the latest day Andi can establish and contribute to the plan?
A. Andi must establish and contribute to the plan by December 31 of the year in which she would like to establish the plan.
B. Andi must establish the plan and make the contribution by May 15 of the following year assuming she filed the appropriate extensions.
C. Andi must establish the plan by July 31 of the year in which she would like to establish the plan and contribute by December 31.
D. Andi must establish the plan by December 31 of the year in which she would like to establish the plan and contribute to the plan by April 15 of the following year.
B. Andi must establish the plan and make the contribution by May 15 of the following year assuming she filed the appropriate extensions.
Which of the following statements is true regarding CODAs?
A. A 401(k) plan must be established in such a way that employers are required to contribute to the plan.
B. A CODA is allowed with a profit sharing plan, stock bonus plan, and a cash balance pension plan.
C. Contributions can only be made after tax.
D. CODAs our employee self-reliant plans.
D. CODAs our employee self-reliant plans.
All of the following are advantages of a 401(k) plan except:
A. Employers are permitted to shelter current income from taxation in a 401(k) plan.
B. Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability.
C. Earnings grow tax deferred until distributed.
D. Employers can sell 401(k) plans with minimal expense.
B. Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability.
Which of the following is not a common defined benefit plan funding formula?
A. Flat amount formula
B. Flat percentage formula
C. Unit credit formula
D. Excludable amount formula
D. Excludable amount formula
Which of the following statements regarding defined benefit plans is true?
A. A defined benefit plan can allocate forfeiture to other plant participants
B. A defined benefit plan can use forfeiture to reduce future plan costs
C. A defined benefit plan cannot give credit for prior service
D. Each participant of a defining benefit plan has an individual account
B. A defined benefit plan can use forfeiture to reduce future plan costs
A participant’s accrued benefit from a qualified defined benefit pension plan is $2000 per month. What is the maximum life insurance death benefit coverage that the plan can’t provide based on the 100-to-1 ratio test?
A. $0
B. $1,000
C. $200,000
D. $240,000
C. $200,000
Which of the following statements is true for a defined benefit plan?
A. A defined benefit plan generally favors older age entrants
B. The maximum retirement benefit payable from a defined benefit plan is the lesser of 100% of the participants compensation or $265,000 for 2023.
C. Define benefit plan with 100 employees is required to pay PBGC insurance premiums
D. All of the above
D. All of the above
Which of the following is not a characteristic of pension plans?
A. Mandatory Funding
B. In-service withdrawals for employees under the age of 59.5
C. Limited investment in life insurance
D. A limit of 10% investment in the employer’s securities
B. In-service withdrawals for employees under the age of 59.5
TRUE OR FALSE:
Target benefit pension plans have the same coverage and eligibility rules as money purchase pension plans.
TRUE
TRUE OR FALSE:
A pension plan is unable to deposit. The mandatory funding amount may apply for a one-time waiver eliminating the funding needed for that particular year.
FALSE
TRUE OR FALSE:
Pension plans do not permit in-iservice withdrawals for individuals less than 62 years old.
FALSE
TRUE OR FALSE:
Pension plans may only invest up to 15% of plan assets in employer stock.
FALSE
TRUE OR FALSE:
The plan participant bear the investment risk of the assets in the defined benefit pension plan.
FALSE
TRUE OR FALSE:
Define benefit and defined contribution plans allocate all plan forfeiture in the same manner.
FALSE
TRUE OR FALSE:
f a company cannot pay a participant the benefit promise from a defined benefit pension plan the PBGC will pay the plan participant the full defined benefit amount.
FALSE
TRUE OR FALSE:
Defined benefit plans can give plan participants credit for service prior to the establishment of the plan.
TRUE
TRUE OR FALSE:
The unit credit formula helps retain employees more than either the benefit formula or the flat percentage formula.
TRUE
TRUE OR FALSE:
Defined benefit plans have separate accounts for each plan participant.
FALSE
TRUE OR FALSE:
The establishment of a defined benefit, pension plan, generally benefits, older employees, more than younger employees.
The establishment of a defined benefit, pension plan, generally benefits, older employees, more than younger employees. TRUE
TRUE OR FALSE:
Participants in a cash balance pension plan have separate accounts.
FALSE
TRUE OR FALSE:
The establishment of a cash balance pension plan, generally benefits, the younger employees more than older employees.
TRUE
TRUE OR FALSE:
A cash balance plan can be structured to benefit owners and higher compensated employees under certain circumstances.
TRUE
TRUE OR FALSE:
A plan sponsor cannot deduct more than 25% of their covered compensation as a contribution to a money purchase pension plan.
TRUE
TRUE OR FALSE:
Each participant has a separate account in a money purchase pension plan.
TRUE
TRUE OR FALSE:
The establishment of a money, purchase pension plan, generally benefits, older employees, more than younger employees.
FALSE
TRUE OR FALSE:
A target benefit pension plan is a defined benefit pension plan.
FALSE
TRUE OR FALSE:
EGTRRA 2001 increased the popularity of money, purchase pension plans.
FALSE
Patrick and Kevin own Irsha Corporation and plan to retire. They would like to leave their assets to their children; therefore, they transfer 70% of the stock to a trust for the benefit of their 10 children pro rata. Patrick and Kevin then plan to sell the remaining. Irisha shares to a qualified ESOP plan. Which of the following is correct?
- The stock transfer to the ESOP is not a 50% transfer and therefore will not qualify for non-recognition of capital gains.
- Any transfer to an ESOP of less than 50% ownership may be subject to a minority discount on valuation.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
B. 2 only
Which of the following are costs of a stock bonus plan?
1. Periodic appraisals costs
2. Periodic actuarial costs
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
A. 1 only
Which of the following are requirements for a qualified stock bonus plan?
- Participants must have passed through voting right for stock held by the plan.
- Participant must have the right to demand employer securities as a distribution, even if the plan sponsor is a closely held corporation.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
C. Both 1 and 2
Rihanna sell stock several years after she received it as a distribution from a qualified stock bonus plan. When the stock was distributed, she had a net unrealized appreciation of $7500. Breanna also had ordinary income from the distribution of $29,000. The fair market value of the stock and the sale price at the time of sale was $81,000. How much of the sale price but will be subject to long-term gain treatment?
A. $7,500
B. $44,500
C. $52,000
D. $73,500
C. $52,000
TRUE OR FALSE:
A stock bonus plan if a particular type of profit sharing plan, so they share many characteristics.
TRUE
TRUE OR FALSE:
A valuation of an employer’s securities is performed only at the creation of the stock bonus plan.
FALSE
TRUE OR FALSE:
A stock bonus plan may require an employee to attain six years of service before concerning the employee eligible.
FALSE
TRUE OR FALSE:
Participant of a stock bonus plan must have passed through voting rights on the employer stock held by the plan.
TRUE
TRUE OR FALSE:
The benefit provided to a plan participant under a half heavy stock bonus plan must vest at least as rapidly as a 3-year cliff or 2-to-6 you graduated investing schedule.
TRUE
TRUE OR FALSE:
A principle disadvantage of a stock loan plan is net unrealized appreciation.
FALSE
TRUE OR FALSE:
Stock bonus plans made permit plan loans.
TRUE
TRUE OR FALSE:
In a leveraged ESOP, the corporation makes after tax contributions to a trust on behalf of its employees.
FALSE
TRUE OR FALSE:
Foreign securities may qualify as qualified replacement securities.
FALSE
TRUE OR FALSE:
The creation of an ESOP may dilute ownership in the corporation.
TRUE
TRUE OR FALSE:
The majority of ESOPs are established by publicly traded corporations.
FALSE
TRUE OR FALSE:
ESOPs are privately-held corporations are not required to provide full roofing rights for shares held in the plan.
TRUE
TRUE OR FALSE:
Employer contributions to an ESOP or tax deductible.
TRUE
TRUE OR FALSE:
An ESOP is not subject to the minimum distribution rules.
FALSE
TRUE OR FALSE:
The put option protects the rank-and-file employees.
TRUE
TRUE OR FALSE:
The trustee of an ESOP must act in the best interest of the plan, participants and beneficiaries.
TRUE
TRUE OR FALSE:
An S-corporation cannot establish an ESOP.
FALSE
The total balance of Tricia‘s 401(k) profit-sharing plan is $200,000. Of this balance $60,000 is attributable to employer profit-sharing plan contributions and $40,000 is attributable to earnings on the employer profit-sharing plan contributions. $39,000 consists of Tricia’s elected deferral contributions to the 401(k) plan and $21,000 is the earnings on Tricia‘s elective deferral contributions. The remainder of the balance consists of employer-matching contributions and earnings on the employer match. If the 401(k) plan uses a graded vesting schedule and Trish has completed two years of service with her employer, what is her vested balance in this 401(k) profit-sharing plan?
$88,000
Trisha’s Full Balance = $200,000
Tricia’s Contribution = $39,000
Earnings on Tricia’s Contributions = $21,000
Company Contributions = $60,000
Earnings on Company Contributions = $40,000
Company Match = $40,000
FIND COMPANY VESTED AMOUNT
Company Contributions of $60,000 + Earnings on Company Contributions of $40,000 = $100,000
$100,000 x 20% = $20,000
FIND PERSONAL VESTED AMOUNT
Tricia’s Contribution + Earnings on Tricia’s Contributions + Vested Employer Match ($40,000 x 20%) = $68,000
ADD BOTH TOGETHER FOR TOTAL
$88,000
