FIN3730 final
3.The diversification requirement applies to all plan investments, especially plans that hold employer securities or employer real property.
F
3.The penalty for violating a prohibited transaction rule is always just 15% of the amount involved.
F
4.A bonus plan must be written.
F
4.A participant's plan benefits cannot be part of the negotiable assets in domestic disputes.
F
4.A payment agreement made with an executive within a year of corporate ownership change is considered a parachute payment, and no rebuttal is allowed.
F
4.A plan distribution made at age 60 is subject to a 10% penalty for early withdrawal because it was made before age 65.
F
4.A severance pay plan that does not meet the ERISA "pension plan" exemption is treated as if it was a defined contribution plan.
F
4.A surviving spouse of a currently insured worker receives Social Security based on the deceased's earnings record until they die or remarry.
F
4.All retirement programs have formal documentation requirements.
F
4.An option has readily ascertainable fair market value if it has a value that can be determined at the time of the grant and the option can be traded on an established market.
F
4.Employees can elect salary reductions either before salary earned or within a month after earnings have been received.
F
4.Generally, it is to an employer's advantage to contribute more to a qualified plan than is deductible.
F
4.In today's benefit environment, communicating plan features to employees is a simple and straightforward process.
F
4.Reimbursement agreements are an effective way to avoid the IRS's reasonableness of compensation issue.
F
4.Severance pay in a funded plan is taxed at the end of the first year that the plan was established.
F
4.Tax laws are the same whether or not company stock has a readily ascertainable fair market value at the time that it is granted.
F
4.The "reasonableness of compensation" rule effectively limits all bonuses to all types of employees to only a small percentage of usual compensation.
F
4.The family maximum for Social Security benefits can, in some cases, be less than 100% of the benefit that would have been paid to the worker alone.
F
4.The special tax treatment of ISOs is automatic, no further rules must be met.
F
7.A direct rollover must be completed within 90 days.
F
7.A hardship distribution from a qualified plan is eligible for a rollover.
F
7.Because of difficulty in estimation, the effects of inflation on future earnings and savings are not usually considered in retirement planning.
F
9.If it appears that a client will fall short of fulfilling retirement needs, an investor should encourage the client to make high-risk investments.
F
1.Most payments that would violate securities laws are, by definition, parachute payments.
F - any
4.Benefits attributed to employer contributions in a defined benefit plan must follow either 3-year vesting or 2- to 6-year vesting.
F defined benefit is 5 or 3-7
1.In an unfunded plan, severance payments are taxable to recipient as a dividend.
F- taxed as compensation income
1.A Section 401(k) plan can be funded entirely from employee salary reductions.
T
1.A corporation adopts a plan by a formal action of the corporation's board of directors
T
1.A participant's cost basis in a qualified retirement plan can include the amount of any plan loans included in income as a taxable distribution.
T
1.A restricted stock plan can be used to keep a recent retiree available for consulting services for a specified length of time.
T
1.A stock plan can be more valuable than cash compensation.
T
1.An executive is not subject to federal income tax on an ISO when the option is granted or exercised.
T
1.An executive must have cash to exercise an incentive stock option.
T
1.Benefits such as life insurance or fringe benefits such as use of company athletic facilities may be important in the retirement planning process.
T
1.ESPP benefits are forbidden to people who own more than 5%.
T
1.ESPP options must be exercised within 5 years.
T
1.ESPPs have little to no out-of-pocket costs to the company.
T
1.Employers may have conflicting objectives for their employee benefit plans that must be identified.
T
1.Equity-based compensation is very useful as an executive incentive in high-growth companies.
T
1.Failure to have a written severance pay plan can lead the IRS to conclude that the payment is a gift or a buy out payment.
T
1.Life insurance provides one of the safest available investments for a qualified plan.
T
1.No employer tax deduction is allowed on an excess parachute payment.
T
1.Retirement planning is interdisciplinary.
T
1.Stock options are a form of compensation with little or no out-of-pocket costs to the company.
T
1.The IRS does not usually question reasonableness of compensation if salaries are not particularly high.
T
1.The designation "highly compensated" is given to employees that have a certain percentage of business ownership or are in the top-paid group.
T
1.Unlike qualified pension plans, Section 401(k) plans allow in-service withdrawals for certain specified "hardships."
T
1.Using a formal fact finder to gather data from an employer is part of "due diligence."
T
1.When an employer offers employees a funded benefit plan, a fiduciary relationship is created.
T
3.Equipment leasing can be an attractive investment to private investors.
T
4.A granting corporation does not get a tax deduction for granting an ISO.
T
4.An employee may have to pay tax when restricted stock is received even though, under state law, the employee does not completely own the stock.
T
4.Employees' subjective reaction to a benefit plan can be as important to plan success as the objective features of the plan.
T
4.For regular employees, excessive payments for salaries or compensation become taxable as ordinary income to the recipient.
T
4.Fully insured plans must be nondiscriminatory with respect to rights, benefits, and features.
T
4.If a loan made from a qualified plan bears a reasonable rate of interest and is adequately secured, it will probably avoid being classified as a prohibited transaction rule.
T
4.In combination plans, retirement benefits are funded with whole life and assets in a separate trust fund.
T
4.Life insurance can be used in a Keogh plan.
T
4.Long-term care for a parent is an example of a contingency that can affect retirement planning.
T
4.Parachute rules do not apply to payments from a SIMPLE IRA.
T
4.Serious retirement planning must begin well in advance of actual retirement.
T
4.Split dollar life insurance is an alternative to life insurance in a qualified plan.
T
4.The ability to treat subsequent gains in stock value at favorable capital gain rates makes a section 83(b) attractive to executives.
T
4.Those who work past age 65 receive an increase in retirement benefits for each year worked between ages 65 and 70.
T
4.Transactions or products that the IRS deems to be for tax avoidance will be penalized.
T
4.Workers are always 100% vested in salary reductions contributed to their Section 401(k) plans.
T
6.Section 401(k) plans that permit employees to make contributions to a "deemed IRA" under the plan reduce the limit for traditional or Roth IRA contributions.
T
7.A direct rollover is a rollover distribution that is paid directly to another eligible retirement plan for the benefit of the distributee.
T
7.The expense method is more accurate than the replacement ratio method for estimating retirement income needs.
T
9.Funding capital needs at death is part of a prudent retirement plan.
T
Loans from a rollover IRA are prohibited.
T
1.Persons who have fully insured status can receive disability benefits while those only currently insured cannot.
false
1.Social Security was designed to serve as an adequate retirement plan for those with no other retirement savings.
false
1.A Section 401(k) plan is advantageous for relatively older workers entering the plan.
F
1.A bonus is considered part of regular salary.
F
1.A nonstatutory stock option provides greater tax deferral than an ISO.
F
1.A profit sharing plan must have a qualified joint and survivor annuity.
F
1.A qualified plan can cover just key employees and business owners.
F
1.A single advisor working alone can usually develop an adequate retirement plan.
F
1.After an employer's needs are known and ranked in order, it is a simple matter to develop a benefit plan.
F
1.An advanced determination letter is a legal requirement.
F
1.Bonus arrangements are simple because they face no tax constraints other than their treatment as ordinary income.
F
1.Cash compensation is not as important in closely held corporations as it is in other forms of corporate organization.
F
1.ESPPs are used by closely held corporations.
F
1.Employers cannot sponsor an individual IRA.
F
1.Fiduciary rules spell out the specific responsibilities of each person involved in the design and maintenance of any benefit plan that an employer has for employees.
F
1.Jack, age 62, has a 40-year-old wife who has never been employed. Jack's wife can receive spouse's benefits when Jack begins receiving Social Security later this year.
F
1.Life insurance is advantageous in a defined contribution plan because it adds to the limit on deductible contributions.
F
1.Only interest and dividends are allowed within an IRA. Other investment income such as rent, cannot be sheltered in an IRA.
F
1.Prototype plans commit the plan sponsor to using a specific funding institution.
F
1.Qualified defined benefit plans can be integrated with Social Security, but qualified defined contribution plans cannot.
F
1.Severance pay plans are not flexible.
F
1.Stock options often are used by closely held corporations as a way to reward executives.
F
1.Tax rules governing corporate deductions for parachute payments apply equally to all types of corporations.
F
1.The company bears investment risk when granting a stock option to an executive.
F
1.The employer bears the market risk in an employee stock purchase plan (ESPP)
F
1.The entire value of a qualified death benefit is always excluded from the decedent's gross estate for federal income tax purposes.
F
1.The only reason to use a bonus is to create a performance incentive.
F
1.To be nondiscriminatory, the same amount of life insurance must be given to each employee.
F
1.Use of cash compensation avoids complex IRS rules, unlike other forms of compensation.
F
