515 Module 1 Qualified Plans Requirements and Regulatory Plan Considerations

Mac, age 39, started 2023 working for the SLH Company. He was paid $128,000 there before he changed jobs and started working for the AKH, Inc. He deferred $10,500 into his SLH 401(k). How much can he defer into his AKH 401(k) this year? SLH and AKH are not related.

$12,000

Susan makes $400,000 working for Great Grapes, Inc. She defers 4% into the 401(k) and receives the 4% match. How much will go into her account in 2023? Tip: Only the first $330,000 of compensation may be used to determine contributions to qualified retirement plans in 2023.

$26,400

The Jones Corporation has a profit-sharing plan with a 401(k) provision. The company matches dollar-for-dollar up to 5%. Pedro makes $150,000 and defers 5% into the 401(k) for 2023. The Jones Corporation has had a banner year and is considering a large contribution to the profit-sharing plan. What is the most that could be contributed to Pedro's profit-sharing account this year?

$51,000

In a Section 401(k) plan, which of these must be considered in complying with the maximum annual additions limit? 1. Employee contributions 2. Catch-up contributions for an employee age 50 or older 3. Dividends paid on employer stock held in the Section 401(k) plan 4. Employer contributions

1 and 4

Which of these are minimum coverage tests for all qualified retirement plans? 1. Minimum benefit test 2. Average benefits percentage test 3. Ratio test 4. 50/40 test

2 and 3

Brad has been the sole owner and operator of Woodmasters, Inc., for the past 15 years. Brad is age 45, and his salary from the business is $160,000. Brad and his spouse, Laura, want to retire when Brad is age 65. Financial performance fluctuated over the first 10 years. 1. The plan passes the ratio percentage test. 2. Three employees (in addition to Brad) will be eligible to participate. 3. The plan passes the participation (50/40) test, although it may not be required to do so. 4. Information is insufficient to perform coverage and participation tests.

2 and 4

Nigel's employer, Alpha, Inc., maintains a qualified defined benefit pension plan. There are 100 eligible employees working for Alpha, Inc. What is the minimum number of employees the retirement plan must cover to satisfy the 50/40 test?

40

What is the permitted disparity for a defined contribution plan with a current base contribution percentage of 6%?

5.7%

In the administration of a qualified retirement plan, which of the following individuals is considered to be a fiduciary?

A financial planner handling the investment of plan assets

Which of the following is the easiest type of retirement plan for an employer to adopt?

A prototype plan

Which of these statements regarding a top-heavy plan is false?

A top-heavy plan is one that provides more than 50% of its aggregate accrued benefits or account balances to key employees.

Which statement regarding top-heavy plans is CORRECT?

An accelerated vesting schedule is used when a defined benefit pension plan is top heavy.

Which of these describe differences between a tax-advantaged retirement plan and a qualified plan? 1. Tax-advantaged plans are not required to meet all the ERISA requirements that a qualified plan must meet. 2. Employer stock distributions from a tax-advantaged plan do not benefit from NUA tax treatment.

Both I and II

Scott is the fiduciary of the BSB retirement plan. The entity responsible for monitoring his actions as a fiduciary is

DOL governs the actions of plan fiduciaries and ensures compliance with the ERISA plan reporting and disclosure requirements.

With an integrated defined contribution plan, what is the maximum permitted disparity?

For an integrated defined contribution plan, the permitted disparity is the lower of the base amount, or 5.7%.

Prohibited transactions are those that are not in the best interest of plan participants and include which of these? 1. A loan between the plan and any party in interest 2. The acquisition of employer securities or real property in excess of legal limits 3. A transfer of plan assets to or use of plan assets for the benefit of a party in interest 4. The sale, exchange, or lease of any property between the plan and a party in interest

I, II, III, and IV

Max is the finance director for Bland Foods, Inc. He is trying to implement a new qualified retirement plan for the company. There are numerous federal guidelines with which the company must comply. Which of the following federal agencies is tasked with supervising the creation of new, qualified retirement plans?

IRS carries out the task of supervising the creation of new, qualified retirement plans..

If a defined benefit pension plan is determined to be top heavy, what is one practical significance of this determination?

One of two accelerated vesting schedules must be used.

Jerry wants to establish a qualified plan for his business to provide employees of the company with the ability to save for retirement. Which of the following plans is a qualified plan? 1. Profit-sharing plan 2. Simplified employee pension (SEP) plan 3. SIMPLE IRA 4. Section 457 plan

Profit-sharing plan

Which of the following is an example of a qualified retirement plan?

Section 401(k) plan

Which of the following is NOT an example of a qualified retirement plan?

Section 403(b) plan

Window Washers, Inc., is establishing a profit-sharing plan using Social Security integration. The base contribution percentage for the profit-sharing plan will be 5%, and the owners have come to you with some questions about Social Security integration. Which one of the following statements is CORRECT?

The excess contribution percentage for the plan could be as high as 10%.

Jim, the president of East Dover Construction Company, has requested your advice in setting up a defined benefit pension plan for eligible employees in the company. Jim founded the company 17 years ago and now has 200 employees, most of whom are under 35 years of age. Due to the nature of the work and ongoing management difficulties, tenure among the employees has averaged under two years. Jim has just fired the managers who were creating problems, but turnover is likely to remain high due to ongoing morale problems. Jim's current salary is $300,000, and he wants the plan to provide him with annual retirement income of $100,000 per year. He expects to retire in 13 years, at age 64. Which of the following statements describes information you need to convey to Jim about factors that could affect the amount of his retirement benefit?

The excess integration method could be used to increase the amount of his plan benefit in retirement.

Which of these statements regarding prohibited transactions is FALSE?

The lending of money or other extension of credit between the plan and a party in interest is never a prohibited transaction exemption.

Able Company is considering various types of qualified plans and seeks your advice. You are asked how a plan participant's benefits at retirement are determined in a defined benefit plan with a flat benefit formula that uses the offset method of integration. Which of these statements would best answer the company's question?

The percentage of pay benefit specified by the plan is reduced by a specific percentage of the retired employee's Social Security benefit.

Which statement regarding qualified retirement plans is CORRECT?

They are subject to ERISA requirements.

Which statement regarding qualified retirement plans is FALSE?

They require an annual profit to allow funding for the plan.

ERISA requirements for qualified plans include

all of these

ERISA requires reporting and disclosure of plan information to all of the following except

plan sponsors