Module 1 - Lifecycle of a Plan

The money an employee chooses to have withheld from payroll and transferred to the plan each pay period is referred to as a

salary deferral, elective deferral, employee contribution

SBA is starting a retirement plan and hires an ERISA attorney to create an individually designed plan. To have the plan pre-approved, what would they submit to the IRS?

Plan document

Rebecca has become eligible for her employer's 401(k) plan and is completing a salary reduction election form. She chooses to contribute 6% of her salary. She does not pay taxes on the amount at this time but expects to pay taxes at the time the amount is withdrawn. What type of contribution does she make?

Pre-tax contribution

Which service provider offers a system to track and change investment elections?

Record keeper

The date an employee meets the requirements set by the plan in order to participate in the plan.

Eligibility Date

What is the name of the major law passed in 1974 to protect participants in qualified plans?

Employee Retirement Income Security Act (ERISA)

T/F: A participant may withdraw money from his or her account at any time, as long as the participant pays any applicable taxes.

False

T/F: An employer is required to allow all those who work for the company to participate in the retirement plan.

False

Which of the following are required in all qualified plan? (2) 1. A plan document 2. Contributions by the employer 3. Assets held in a trust 4. Individual account balances

1. A plan document 3. Assets held in a trust

A participant would like to take a loan from the plan. May the participant withdraw money from the plan?

.In some cases, if the plan allows.

In order for a plan to remain a qualified plan, which of the following are required? (2) 1. The plan must pass testing each year to demonstrate that it does not discriminate in favor of highly compensated employees (HCEs) 2. All employees must be eligible to participate in the plan within a year of hire 3. The plan document must be amended and restated each year 4. The plan must distribute notices and disclosures to participants and beneficiaries

1. The plan must pass testing each year to demonstrate that it does not discriminate in favor of highly compensated employees (HCEs) 4. The plan must distribute notices and disclosures to participants and beneficiaries

Paige is a church employee, with the option to contribute money into the church-sponsored retirement plan. What type of plan would Paige most likely have?

403(b)

T/F: In order to receive an employer nonelective contribution, an employee must make a salary deferral.

False

A participant experiences a hardship due to a medical condition. May the participant take a distribution?

In some cases, if the plan allows.

A participant is fired. May the participant take a distribution?

In some cases, if the plan allows.

A participant has five years of service with the plan. May the participant take a distribution?

In some cases, if the plan allows. This is an example of an "in-service" withdrawal and is not available in all plans.

A participant has died. May the participant's beneficiary take a distribution immediately?

In some cases, if the plan allows... A participants death is a distributable event for all plans that allow it. However, the law provides that distributions do not have to be made until normal retirement date.

Wanda is a high-level executive at her company. Her employer contributes special stock options to a plan on her behalf based on her performance. The employer is able to target a higher amount of benefits to Wanda and other highly paid employees, but they do not receive the same tax benefits as they would through a plan under IRC 401(a). This is an example of a:

Nonqualified plan

Ling offers a retirement plan to her employees. Both Ling and her employees receive tax benefits from the plan. Because of this, the government requires her to provide adequate benefits to both highly paid and non-highly paid employees. As long as Ling follows the rules, she is operating a:

Qualified plan

Selma looks at her account statement and sees a source of money that was transferred from the 401(k) plan offered by her previous employer. What type of contribution is this?

Rollover contribution

Randall contributes 3% of his salary to his employer's 401(k) plan each pay period. The contributions are reported as taxable income on his current year tax filing. He expects that neither the contributions nor their earnings will be subject to taxation when he retires. What type of contribution is he making?

Roth contribution

Each pay period, Chloe has 6% of her salary take from her pay and placed in a retirement account. Every quarter, Chloe uses an online calculator to see her projected savings. She decides t increase her contribution to 7% next year in order to have more money at retirement. What type of plan does she have?

Defined contribution

The process of informing an employee of their participation in the plan, providing them information about the plan, and collecting information form them.

Enrollment

Hector is retiring and starts receiving monthly payments from his retirement plan account. He will receive the same amount each month for ten years. What form of payment does he receive?

Installment

Ravi would like to sign up for his company's 401(k) plan. He talks to the HR director who gives him a simplified explanation of the plan, called the:

Summary plan description (SPD)

Which of the following are required in order for a plan to maintain qualified status of an ERISA plan? (3) 1. Have a plan document 2. Be operated according to the plan document 3. Insure investments against loss of value 4. File Form 5500 5. Provide an annuity option for distribution of benefits

1. Have a plan document 2. Be operated according to the plan document 4. File Form 5500

Marc has been making contributions to his 401(k) plan. The amount withheld from his paycheck is subject to taxation for the current year. He expects that the earnings the contributions accrue will be subject to taxation when he withdraws the money at retirement. What type of contribution is he making?

After-tax contribution

A participant retires at normal retirement age. May the participant take a distribution?

Yes, in all qualified plans.

The company a participant works for closes and terminates the plan. May the participant take a distribution?

Yes, in all qualified plans.

Which role calculates the amount of employer contributions?

Administrator

Angelica's husband passes away. She is name as the beneficiary of his retirement account. She receives periodic payments from the account for the rest of her life. What form of payment does she receive?

Annuity

Who would be responsible for drafting an individually designed plan document?

Attorney

Which role is responsible for determining employee eligibility?

Administrator

Which role is responsible for nondiscrimination testing?

Administrator

Sunrise Solar Panels is working with a service provider to establish a retirement plan. What should Sunrise Solar Panels use to customize the basic plan document from their service provider?

Adoption agreement

Which service provider assists the employer in the process of selecting other service providers?

Advisor

Which service provider provides investment education to the employer and participants?

Advisor

The date an employee becomes a participant in the plan.

Entry Date

T/F: Most workers in the U.S. are just as likely to save for retirement on their own as they are to save through an employer-sponsored plan.

False

Regina quit her job and has $25,000 vested in her account. The plan allows her to transfer the money into the plan at her new employer. In what form does she receive the payment?

Lump sum

Which service tracks money as it is contributed to the plan?

Record keeper

T/F: A retirement plan is not in effect if the employer has not signed the plan document.

True

T/F: In order to receive an employer matching contribution, an employee must make a salary deferral.

True

Angie contributes a portion of her pay to her 401(k) account every month on a pre-tax basis. As a result, the amount of her taxable income is reduced for the current year. What is the best way to describe the tax break she receives?

tax deferral

Juanita's company contributes money into a retirement plan in Juanita's behalf. Juanita does not need to put any money into the plan. When she retires, the benefit she receives is a percentage of her final salary at retirement. What type of plan does Juanita have?

Defined benefit

Which of these is an employer matching contribution formula? 1. 50% on the first 2% of compensation deferred 2. 2.5% of compensation for all eligible employees 3. $200 for each eligible employee

1. 50% on the first 2% of compensation deferred

Which of the following are employer responsibilities? 1. Maintaining the plan for the exclusive benefit of plan participants 2. Following a prudent process when hiring service providers 3. Advising participants on what investments to select 4. Ensuring that the plan is administered according to the plan document 5. Collecting and maintaining data needed to administer the plan

1. Maintaining the plan for the exclusive benefit of plan participants 2. Following a prudent process when hiring service providers 4. Ensuring that the plan is administered according to the plan document 5. Collecting and maintaining data needed to administer the plan

RHB, LLC offers a 401(k) plan to all of its employees. The employer wants to make a contribution to the plan for each employee. Which of the following are ways the company may benefit from this contribution? 1. RHB can deduct the contribution from taxes. 2. RHB can use money in the 401(k) trust to pay off creditors. 3. RHB can target benefits solely to key executives while excluding lower paid employees. 4. RHB can use the 401(k) plan as a recruiting tool.

1. RHB can deduct the contribution from taxes. 4. RHB can use the 401(k) plan as a recruiting tool.

Which of the following are reasons the government regulates qualified plans? 1. To ensure the plan does not disproportionately favor higher paid employees over lower paid employees. 2. To ensure all employees will have retirement savings. 3. To simplify administration of retirement plans. 4. To prevent individuals from benefiting excessively. 5. To ensure that the plan is operated in the sole interest of the participants.

1. To ensure the plan does not disproportionately favor higher paid employees over lower paid employees. 4. To prevent individuals from benefiting excessively. 5. To ensure that the plan is operated in the sole interest of the participants.

Which of the following are reasons why a person employed by a company may not be eligible for the plan? (3) 1. Does not make enough money 2. Has not worked for the company for long enough 3. Is a contractor or union employee 4. Is too old 5. Is too young

2. Has not worked for the company for long enough 3. Is a contractor or union employee 5. Is too young

Earl is state trooper. As a state employee, Earl contributes money to a retirement plan through his employer and the money is tracked in an individual account balance for him. What type of plan would Earl most likely have?

457

A participant becomes disabled. May the participant take a distribution?

In some cases, if the plan allows... Disability is a distributable event when stated in the plan's provision but, it is not required under law.