FINC425 - Retirement

6. Which of the following is/are correct regarding loans from a 401k plan? (1) A loan from a 401k plan cannot exceed $50,000 or 50% of the participant's vested benefit. (2) If a participant's vested amount is $15,000 or less, the entire amount can be made available for loan without regard to the 50% restriction. A. (1) only B. (2) only C. None of the above D. All of the above

A. (1) only

77. Which of the following are characteristics of restricted stock? (1) Must be issued to employees on a nondiscriminatory basis (2) Used as a form of incentive compensation for key employees (3) Subject to substantial risk of forfeiture so income (value of the shares) is not recognized at the time of the award (4) When no longer subject to risk of forfeiture, the value of the stock is recognized as ordinary income to the employee and is not deductible by the employer A. (2) and (3) only B. (2) and (4) only C. (1), (2), and (3) only D. All of the above

A. (2) and (3) only

39. Amounts transferred from a qualified retirement plan to an IRA of a spouse or former spouse pursuant to a divorce decree are subject to which of the following penalties? A. 0% B. 10% C. 15% D. Ordinary income tax rates

A. 0%

18. For the substantially equal periodic payment (SEPP) exception to apply for premature distributions from a retirement plan, payments must continue for __________ or until the participant is __________, whichever is longer. A. 5 years, age 59 ½ B. 5 years, age 65 C. 10 years, age 59 ½ D. 10 years, age 65

A. 5 years, age 59 ½

91. Which of the following is/are correct regarding profit sharing plans? (1) Company profits are required to make contributions to a profit sharing plan. (2) Profit sharing plans are best suited for companies with unstable cash flows. A. (1) only B. (2) only C. None of the above D. All of the above

B. (2) only

92. In which of the following qualified retirement plans are the employees responsible for the investment risk? (1) Money purchase plans (2) Target benefit plans (3) Defined benefit plans (4) Cash balance plans A. (1) and (3) only B. (2) only C. (2) and (3) only D. (3) and (4) only

B. (2) only

38. Which of the following is the penalty for a premature distribution from a qualified plan, 403b plan, IRA, or SEP? A. 5% B. 10% C. 15% D. Ordinary income tax rates

B. 10%

54. There is an excise tax of __________ on the amount that should have been distributed from a retirement plan according to required minimum distribution rules but was not. A. 25% B. 50% C. 75% D. 100%

B. 50%

17. Employees must be eligible to participate in a 401k plan within __________ after the later of attaining age 21 or completing 1 year of service. A. 3 months B. 6 months C. 9 months D. 1 year

B. 6 months

21. If an individual contributes more to an IRA than is permitted, the excess contribution is subject to a: A. 5% excise tax. B. 6% excise tax. C. 10% excise tax. D. 15% excise tax.

B. 6% excise tax.

79. Which of the following doctrines states that an employee will be taxed on compensation that he or she has a right to receive on demand without any risk of forfeiture? A. Accrual receipt doctrine B. Constructive receipt doctrine C. Earned income doctrine D. Conditional receipt doctrine

B. Constructive receipt doctrine

26. All qualified retirement plans must satisfy the reporting and disclosure requirements as specified by __________. A. the PBGC B. ERISA C. the SEC D. the IRS

B. ERISA

16. Which of the following government agencies are responsible for monitoring qualified retirement plan rules and eligibility? A. ERISA and the IRS B. IRS and the Department of Labor C. IRS and the PBGC D. ERISA and the PBGC

B. IRS and the Department of Labor

56. Which of the following are characteristics of group term life insurance? (1) Relatively low cost to the employer (2) Requires a medical exam for employees to qualify for coverage (3) Possible loss of coverage when the employee terminates employment (4) Possible restriction on the amount of coverage that may be obtained by the employee A. (1) and (4) only B. (2) and (3) only C. (1), (3), and (4) only D. All of the above

C. (1), (3), and (4) only

2. All but which of the following groups are covered under social security? (1) Clergy (2) Federal employees hired before 1984 (3) Railroad employees (4) Newspaper delivery persons under age 18 A. (1) and (3) only B. (1), (2), and (4) only C. (2), (3), and (4) only D. All of the above

C. (2), (3), and (4) only

8. Hardship withdrawals taken from a 401k plan are subject to a __________ premature distribution penalty. A. 0% B. 5% C. 10% D. 15%

C. 10%

19. Which of the following is/are correct regarding investment risk in a qualified retirement plan? (1) In a defined contribution plan, the employer bears the investment risk. (2) In a defined benefit plan, the employee bears the investment risk. A. (1) only B. (2) only C. None of the above D. All of the above

C. None of the above

24. All but which of the following are characteristics of a SEP IRA? A. A SEP IRA is 100% owned by the participant. B. A SEP IRA is 100% vested at all times. C. Plan loans are permitted. D. The contribution deadline to a SEP IRA is April 15 including extensions.

C. Plan loans are permitted.

76. In which of the following plans does an employee give up a specified portion of current compensation, and in return the employer promises to pay a benefit in the future equal to the amount deferred plus a predetermined rate of interest? A. Salary continuation plan B. Supplemental employee retirement plan C. Salary reduction plan D. Excess benefit plan

C. Salary reduction plan

22. If a fully insured worker elects to receive social security retirement benefits early, which of the following is correct? A. The benefit will be temporarily reduced until the worker reaches full retirement age. B. The benefit will be temporarily reduced until the worker reaches age 70. C. The benefit will be permanently reduced. D. The benefit will be permanently reduced until the spouse reaches full retirement age.

C. The benefit will be permanently reduced.

36. In order to maintain a SIMPLE plan, an employer may not have more than __________ employees. A. 25 B. 50 C. 75 D. 100

D. 100

4. Hardship withdrawals taken from a 401k plan before age 59 ½ typically require __________ of plan participation. A. 6 months B. 9 months C. 1 year D. 2 years

D. 2 years

1. Early withdrawals from a SIMPLE IRA are subject to a __________ penalty if the withdrawals are made during the first two years of plan participation. A. 10% B. 15% C. 20% D. 25%

D. 25%

93. Under the social security system, the full retirement age for an insured worker born in the year 1960 or after is age __________. A. 63 B. 65 C. 66 D. 67

D. 67

5. Which of the following are characteristics of stock bonus plans? (1) Protects company stock from hostile takeovers (2) Provides a market for the owner's closely held shares of stock (3) Provides a tax advantage to employees through net unrealized appreciation (4) Provides tax deductions while having no effect on cash flow A. (1) and (2) only B. (1), (3), and (4) only C. (2), (3), and (4) only D. All of the above

D. All of the above

100. An employee will not be taxed on compensation if which of the following conditions are satisfied? A. The employee elects to defer compensation under a written agreement before services are rendered. B. The agreement between the employer and employee represents an unsecured promise to pay benefits. C. The plan that will pay benefits to the employee is unfunded, or if funded, is subject to substantial risk of forfeiture. D. All of the above are correct.

D. All of the above are correct.

For questions 11-13, determine how the annual cost of a defined benefit plan will be effected by the scenario provided. Use only one answer per blank. Answers may be used more than once or not at all. A. Higher annual cost B. Lower annual cost C. No effect 11. ____ Higher than expected turnover 12. ____ Longer life expectancy 13. ____ Higher than expected investment returns

B. Lower annual cost A. Higher annual cost B. Lower annual cost

9. Which of the following is granted to an employee at no cost or at a bargain price with restrictions, such as the stock cannot be sold or disposed of before a specified period of time? A. Junior stock B. Restricted stock C. Phantom stock D. Stock appreciation rights

B. Restricted stock

55. Hardship withdrawals from a 401k plan can only occur after a participant has demonstrated to the plan administrator which of the following? A. The money will be paid back within five years. B. The participant has an immediate and heavy financial need. C. The money will be used for a first-time home purchase. D. All of the above are correct.

B. The participant has an immediate and heavy financial need.

10. Defined benefit plans tend to favor older employees for which of the following reasons? A. The future value of the participant's promised benefit is greater the less time remaining until retirement. B. The present value of the participant's promised benefit is greater the less time remaining until retirement. C. The future value of the participant's promised benefit is greater the more time remaining until retirement. D. The present value of the participant's promised benefit is greater the more time remaining until retirement.

B. The present value of the participant's promised benefit is greater the less time remaining until retirement.

3. The two broad categories of defined contribution plans are: A. qualified plans and nonqualified plans. B. profit sharing plans and pension plans. C. personal plans and employer plans. D. defined benefit plans and pension plans.

B. profit sharing plans and pension plans.

57. All but which of the following are characteristics of an employee stock purchase plan (ESPP)? A. The maximum discount permitted is 15% of the greater of the market price on the date the option is granted or the date the shares were purchased. B. The plan must be offered to employees on a nondiscriminatory basis. C. The maximum fair market value of stock an employee has the right to purchase cannot exceed $50,000 in any calendar year. D. An ESPP allows a company to sell stock to employees at a discount from the market price.

C. The maximum fair market value of stock an employee has the right to purchase cannot exceed $50,000 in any calendar year.