Retirement Planning Mid Term

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Thibodaux Company sponsors an integrated profit sharing plan with a base percent of 20%. Boudreaux, who is 60 years old, earns $330,000 per year. Assuming the plan uses the 2019 Social Security wage base as the integration level, how much more will Boudreaux receive because the plan is integrated over a plan that contributes a flat 20% of compensation? Select one: $0 $5,500 $8,385 $11,235

$0 He would not get any benefit from integration if the base percent is 20% because 20% of $280,000 (2019 compensation limit) equals $56,000 (2019 annual additions limit).

Harold Baines earns $103,000 a year, pays 7.65 percent of his gross pay in Social Security payroll taxes, and saves $14,110 of his gross income. What is Harold's wage replacement ratio? Select one: 78.65% 80% 92.35% 65%

$14,110 / $103,000 = 13.7% = 100% - 13.7% - 7.65% = 78.65%

Nobelle is 43 years old and a participant in her company's 401(k) plan. What is the maximum amount she can personally contribute to her 401(k) based on 2022 numbers? Select one: $20,500 $25,000 $66,000 $290,000

$20,500

Sheehan works for Andy Company and is a superior sales guy. His total compensation this year is $600,000. Andy sponsors an integrated profit sharing plan with a base percentage of 5.5% and a maximum excess percentage. It uses the current wage base as the integration level. How much will the company contribute for Sheehan for 2019? Select one: $15,125 $23,491 $23,785 $56,000

$23,491 The excess percentage is 11% (twice the base percentage). Therefore, Sheehan receives 5.5% from zero to the wage base of $132,900 (2019) and 11% on income above the wage base up to the covered compensation limit of $280,000 (2019). [[$280,000 - $132,900] x 11% + $132,900 x 5.5%]. $16,181 + $7,310 = $23,491.

Sheehan works for Andy Company and is a superior sales guy. His total compensation this year is $600,000. Andy sponsors an integrated profit sharing plan with a base percentage of 5.5% and a maximum excess percentage. It uses the current wage base as the integration level. How much will the company contribute for Sheehan for 2019? Select one: $15,125 $23,491 $23,785 $56,000

$23,491 The excess percentage is 11% (twice the base percentage). Therefore, Sheehan receives 5.5% from zero to the wage base of $132,900 (2019) and 11% on income above the wage base up to the covered compensation limit of $280,000 (2019). [[$280,000 - $132,900] x 11% + $132,900 x 5.5%]. $16,181 + $7,310 = $23,491.

Pete participates in his company's ESOP plan. The company initially transferred 1,000 shares of stock at $3 per share into Pete's account. Four years later, when the stock was worth $10 per share, Pete retired. If he elected to receive the stock at retirement and sells it today (six years later) for $15,000, what are the tax consequences? $3,000 ordinary income at distribution, $12,000 capital gain $10,000 ordinary income at distribution, $5,000 capital gain $12,000 ordinary income at distribution, $3,000 capital gain $15,000 capital gain at time of sale

$3,000 ordinary income at distribution, $12,000 capital gain

BigCorp, LLC has a 401(k) plan that allows for hardship distributions. Sandra would like to return to school to get a Masters degree. She has $3,000 in her savings account to use, but would like to take a hardship distribution from her 401(k) plan for the maximum amount available. Sandra's program will take two years and cost $7,000 per year. Sandra's 401(k) account balance is $20,000. Sandra has never made any hardship distributions and her elective contributions to the plan total $10,000. How much can Sandra withdraw as a hardship distribution? Select one: $4,000 $7,000 $10,000 $20,000

$4,000 Sandra can take a distribution up to the hardship expense less other assets available to pay the hardship expense ($7,000 for one year of tuition - $3,000 in savings).

Soft Touch Construction sponsors a 401(k) profit sharing plan. In the current year, the company contributed 25% of each employees' compensation to the profit sharing plan. The ADP of the 401(k) plan for the NHC was 3.5%. If Jason, age 57, earns $100,000 and is a 6% owner, what is the maximum amount that he may defer into the 401(k) plan for this year? Select one: $5,500 $11,500 $19,000 $25,000

$5,500

Charles earns $400,000 per year at Home Cleaning Services, Inc. where he has been employed for the last ten years. Home Cleaning Services sponsors a defined benefit plan that provides its employees with a benefit equal to 1.5% per year of service of the employees final compensation. At the current time, what is Charles' retirement benefit payable from the defined benefit plan? Select one: $42,000 $60,000 $225,000 $280,000

$60,000

Which of the following is true of both ESOPs and Stock Bonus Plans? Loans may be permitted Date for contribution is due date of tax return plus extensions Type of contribution is generally cash Both can be integrated with Social Security

1 & 2

Which of the following employer contribution formulas satisfy the gateway requirement for a new comparability plan? Each NHCE receives a 5% contribution All employees - HCE and NHCE - receive a 4% contribution NHCE receive a 3% contribution and HCE receive 9% NHCE receive 2% and NHCE receive 7% Select one: 1 and 3 1, 2, and 3 2, 3, and 4 1 only

1 and 3

Which of the following employer contributions satisfies the safe harbor test? 100% match up to 3%, 50% match on the next 2% 100% match to 3% 3% nonelective contribution 1.5% nonelective contribution Select one: 1 and 2 2, 3, and 4 1, 2, and 4 1 and 3 1, 2, and 3

1 and 3

Which of the following phrases describes employer contributions within a profit sharing plan? discretionary mandatory substantial and recurring fixed Select one: 1 and 3 1 only 2 and 4 1, 2, and 4

1 and 3

An actuary is required to establish and/or administer which of the following retirement plans: Target benefit Profit sharing plan Money purchase plan Defined benefit plan 4 only 1 and 4 2 and 4 3 and 4

1 and 4 Defined benefit plans and target benefit plans are required to use actuarial calculations. Defined benefit plans required annual actuarial calculations, while target benefit plans require an actuarial calculation only at the inception of the plan.

Which of the following is true regarding negative elections? 1. A negative election is a device where the employee is deemed to have elected a specific deferral unless the employee specifically elects out of such election in writing. 2. Negative elections are no longer approved by the IRS. 3. Negative elections are only available for employees who enter the plan when it is first established and are not available for new employees. Select one: 1 only 1 and 2 2 and 3 1, 2, and 3

1 only

Which of the following profit sharing allocation options provides for a combination of age and compensation to allocate the contributions? Standard Social Security Integration Age-Based Profit Sharing Select one: 1 only 3 only 2 and 3 1, 2, and 3

1 only

Kopech Factory has 100 non-excludable employees, 10 of whom are highly compensated. Eight of the 10 highly compensated and 63 of the 90 non-highly compensated employees are covered under Kopech's qualified plan. The average accrued benefits for the highly compensated is 4% and the average accrued benefit for the non-highly compensated is 1.5%. Which of the following statements is true regarding coverage? The plan passes the ratio percentage test. The plan passes the average benefits test. Select one: 1 only 2 only Both 1 and 2 Neither 1 nor 2

1 only The ratio percentage test compares the % of nonhighly compensated to the % of highly compensated covered. The ratio must be greater than or equal to 70% for the plan to pass the ratio percentage test. The calculation for Kopech's qualified plan is as follows:NHC = 63 ÷ 90 = 70%HC = 8 ÷ 10 = 80%70% ÷ 80% = 87.5% (pass)Kopech's plan passes the ratio percentage test requirement of 70%. The average benefits test requires the average benefit of the non-highly compensated employees to be at least 70% of the average benefit of the highly compensated. Kopech's plan does not satisfy the average benefits test because the average benefit of the non-highly compensated compared to the average benefit of the highly compensated is less than 70% (1.5%/4% = 37.5%) (fail).

Which of the following are defined contribution plans? Profit sharing plan Target benefit pension plan New comparability plan Thrift plan Select one: 1 and 4 2, 3, and 4 1, 2, and 4 1, 2, 3, and 4

1, 2, 3, and 4 Defined contribution plans include: money purchase pension plan, target benefit pension plan, profit sharing plan, 401(k), stock bonus plan, ESOP, thrift plan, new comparability plan, and an age-based plan.

Fennelly Company failed ADP testing for 2018. Which of the following are options available for correcting the failure? Contribute a nonelective contribution to all NHCEs Withdraw money from HCE via a corrective distribution Make an additional match contribution to NHCEs who participated Pay a penalty as calculated by the IRS Select one: 1 and 4 1, 2, and 3 2, 3, and 4 1, 2, 3,and 4

1, 2, and 3

White Sox Incorporated sponsors a qualified plan that requires employees to meet one year of service and to be 21 years old before being considered eligible to enter the plan. Which of the following employees are not eligible? Abreu, age 18, who has worked full-time with the company for three years Moncada, age 22, who has worked full-time with the company for six months Renteria, age 65, who has worked 500 hours per year for the past six years Giolito, age 35, who has worked full-time with the company for ten years Select one: 4 only 1 and 2 3 and 4 1, 2, and 3

1, 2, and 3 The White Sox can exclude anyone who has not attained age 21 and has not completed one year of service with the company with 1,000 hours during that year. Abreu is not yet 21. Moncada has not completed a full year of twelve months of service. Renteria does not work 1,000 hours each year.

Which of the following contributions is always 100% vested? Qualified non-elective contribution Employee elective deferrals Employer matching contribution Qualified matching contribution Select one: 1, 3, and 4 1, 2, and 4 2, 3, and 4 1, 2, 3, and 4

1, 2, and 4 Employer contributions may be subject to a vesting schedule

The Noonan School operates a profit sharing plan on behalf of its employees. The plan has entrance dates on the first day of the first month and the first day of the seventh month of the plan. The plan operates on a calendar year basis. On April 12, 2019, Sam turned 21 years old and celebrated three years of service. On November 15, 2019, Martha, age 25, celebrated her one-year anniversary of employment. On what date was Martha eligible to enter the plan? Select one: 7/1/2019 11/15/1029 7/16/2019 1/1/2020

1/1/2020

The Noonan School operates a profit sharing plan on behalf of its employees. The plan has entrance dates on the first day of the first month and the first day of the seventh month of the plan. The plan operates on a calendar year basis. On April 12, 2019, Sam turned 21 years old and celebrated three years of service. On November 15, 2019, Martha, age 25, celebrated her one-year anniversary of employment. On what date was Martha eligible to enter the plan? Select one: 7/1/2019 11/15/1029 7/16/2019 1/1/2020

1/1/2020 11/15/2019 - Martha celebrates one year of service 1/1/2020 - Next entry date Martha was 25 on the date of her first year of service. The correct answer is: 1/1/2020

WHR, LLC sponsors a defined contribution plan. Vaughn, age 44, has compensation of $160,000 for the year. WHR has made a $25,000 profit sharing plan contribution on Vaughn's behalf and $5,000 of plan forfeitures were allocated to Vaughn's profit sharing plan during the year. How much can Vaughn defer into his CODA plan (401(k)) to maximize his annual contributions to the qualified plan for 2019? Select one: $19,000 $25,000 $26,000 $34,000

19,000

Susie has the following expenditures during the current year: ExpenseAmount1. Health Care$8002. Savings$4,0003. Travel$5004. Gifts to Grandchildren$1,000 Which of these expenditures would you expect to decrease during Susie's retirement? Select one: 2 only 1 and 3 2 and 4 1, 2, 3, and 4

2 only

Tony started working in 1979 and retired in 2015. Unfortunately, our crystal ball says he will pass away in 2028. What is his retirement life expectancy? Select one: 13 years 36 years 49 years 25 years

2028 - 2015 = 13 years

Which of the following vesting schedules may a top-heavy profit sharing plan not use? Select one: 1 to 4 year graduated 35% after 1 year, 70% after 2 years, and 100% after 3 years 2 to 6 year graduated 4 year cliff

4 year cliff The only choice that is not possible is a 4 year cliff, since 3 year cliff is the standard for a DC plan. Top heavy is irrelevant with DC plans after PPA 2006.

The average deferral limit for Jackson St.'s NHCE group is 2.87%. What is the maximum that their HCEs can contribute to the plan? Select one: 4.87% 5.74% 3.59% 4.12%

4.87%

Which of the following is an example of a qualified retirement plan? Select one: Rabbi trust 401(k) Plan Nonqualified stock option plan ESPP

401(k) Plan A 401(k) is a qualified plan. All of the others are not qualified retirement plans.

JJ is a Marine, who served our country for the last 25 years. He has $250,000 in his U.S. Government Thrift Savings Plan. Which of the following plans is JJ's Thrift Plan most similar to? Select one: Defined benefit plan Cash balance plan Profit sharing plan 401(k) plan

401(k) plan The US Government Thrift Savings Plan is very similar to a 401(k) plan. It allows for the same employee deferral limits and maximum contribution limits as a 401(k) plan. The other choices are not correct.

Which of the following is not a qualified plan? Select one: ESOP 401(k) Plan 403(b) Plan Target benefit plan

403(b) Plan

Johnny is 56 years old and owns Bench's Catcher's Equipment, a very successful baseball equipment manufacturer. He sponsors a 401(k) plan with a dollar-for-dollar match up to three percent. Alex is an executive that works at the company and earns $230,000. He defers the maximum into the plan. The NHCEs deferred three percent this year, while the HCEs deferred six percent. After the end of last year, he received $1,200 back from the plan. What did he receive? (CFP Review Hot Topics' Quiz, July 2021) A corrective distribution A required contribution QMC QNEC

A corrective distribution

All of the following statements concerning highly compensated employees are correct, except: Employers can elect to limit highly compensated employees to those with compensation in excess of the annual limit and who are in the top 20% of paid employees, as ranked by compensation. A greater than five percent owner is always highly compensated. A five percent owner is considered highly compensated. When an employer elects to classify the top 20% of paid employees, as ranked by compensation, as highly compensated, this reclassification may help the employer pass the coverage test or the ADP test.

A five percent owner is considered highly compensated. A greater than five percent owner is considered highly compensated.

Which of the following statements is false? Select one: To be more conservative in planning for an individual's retirement, extend the individual's life expectancy. A Monte Carlo Analysis uses a random number generator to provide the advisor with an array of possible outcomes utilizing the same fact pattern. A sensitivity analysis helps the advisor determine the single most effective factor in a retirement plan. The capital preservation model assumes that at life expectancy the client will have exactly the same account balance as he did at retirement.

A sensitivity analysis helps the advisor determine the single most effective factor in a retirement plan.

Nex sponsors a DB(k) plan that provides benefits for all employees. Nex adopted the plan four years ago. Kleen, who is age 55 and earns $100,000, has been employed for the last ten years with Nex. Which of the following statements is correct regarding Kleen's benefits under Nex's DB(k) plan? Select one: Kleen will be limited on his deferral to the 401(k) plan because of the required contribution to the DB part of the plan If the DB(k) plan provides for a cash balance option, then Kleen should be receiving pay credits of 6% per year All benefits provided under the DB(k) plan will be 100 percent vested for Kleen Because this plan is a proto-type DB (k) plan, Nex will not have to file a Form 5500

All benefits provided under the DB(k) plan will be 100 percent vested for Kleen Option a is not correct. He could defer up to the annual limit. Option b is not correct. Since Kleen is over age 50, he would be receiving pay credits of 8% per year. Option d is not correct because DB(k) plans must file a single Form 5500.

Which factors may affect an individual's retirement plan? Work life expectancy. Retirement life expectancy. Savings rate. Investment returns. Inflation. Select one: 1 and 2 1, 2, and 3 1, 2, 3, and 4 All of the above

All of the above

All of the following characteristics of plan vesting are correct, except: Select one: Vesting is the transfer of ownership of employer contributed assets to the employee over a specific period of time. If an employee terminates before being fully vested, then he or she will forfeit a portion of the employer's funds (and associated earnings). An employee's elective deferral contributions are subject to the vesting rules. Employers may always elect to provide employees with vested benefits faster than the standard schedules.

An employee's elective deferral contributions are subject to the vesting rules. An employee's elective deferral contributions are always 100% vested as are any related earnings.

Andi, the 100 percent owner of Andi's Day Care, would like to establish a profit sharing plan. Andi's Day Care's tax year ends July 31 to coincide with the school year. What is the latest day Andi can establish and contribute to the plan? Select one: Andi must establish and contribute to the plan by December 31 of the year in which she would like to establish the plan Andi must establish the plan by July 31 of the year in which she would like to have the plan and contribute by April 15 of the following year assuming she filed the appropriate extensions Andi must establish the plan by July 31 of the year in which she would like to establish the plan an d contribute by December 31 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

Andi must establish the plan by July 31 of the year in which she would like to have the plan and contribute funds by April 15 the following year assuming she filed all of the appropriate extensions.

Which of the following statements is true regarding CODAs? Select one: A 401(k) can only be established as a stand alone plan A CODA is allowed with a profit-sharing plan, stock bonus plan, and a cash balance pension plan Contributions can only be made after-tax CODAs are employee self-reliant plans

CODAs are employee self-reliant plans 401(k) plans are not stand alone plans; they must be combined with another plan. A CODA is not allowed with a cash balance pension plan (other than the special DB(k) plan). Contributions can be made pre- and post-tax.

Ralf, a 40-year-old nurse who earns $80,000 a year, saves 14% of his annual gross income. Assume that Ralf wants to maintain his exact pre-retirement lifestyle. Calculate Ralf 's wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars. Select one: 70% 78% 86% 92%

Dollar Value Percentage $80,000.00=100.00%Salary($11,200.00)=(14.00%)Less: Current savings ($6,120.00)=(7.65%)Less: Payroll taxes $62,680.00= 78.35%Wage Replacement Ratio

What legislation was enacted by Congress in 1974 in order to limit various abuses by retirement plan sponsors? Select one: ERISA IRS FINRA SEC

ERISA

Which of the following is true about Employee Stock Ownership Plans (ESOPs)? Select one: ESOPs can use Social Security integration The ESOP must own at least 30 percent of the corporation's stock immediately after the sale Employer receives a tax deduction for the value of the stock contributed to the plan Participant receives allocations of the employer stock

ESOPs can use Social Security integration

Which of the following is not an example of a qualified retirement plan? Select one: ESOP Age-based profit sharing plan ESPP 401(k) plan

ESPP An ESPP, Employee Stock Purchase Plan, is not a qualified retirement plan. The ESPP will be discussed in detail in Chapter 14. All of the other plans listed are qualified retirement plans.

Which of the following is not an example of a qualified retirement plan? Select one: ESOP Age-based profit sharing plan ESPP 401(k) plan

ESPP An ESPP, Employee Stock Purchase Plan, is not a qualified retirement plan. The ESPP will be discussed in detail in Chapter 14. All of the other plans listed are qualified retirement plans.

What is true of the put option within an ESOP? Select one: Employee can require employer to repurchase stock at the fair market value on the distribution date The put option reduces the employer's risk, but increases the employee's cash requirements In the final year of an election period, an employee can increase the diversification amount to 100%. An employee can utilize the option if a participant for more than 5 years and before reaching age 50.

Employee can require employer to repurchase stock at the fair market value on the distribution date

When considering the tax advantages of a qualified plan, which of the following would not be considered a tax benefit? Select one: Employers receive a current income tax deduction for contributions made to qualified plans. Employees are not currently taxed on pre-tax contributions; rather they are taxed when funds are distributed from the plan. Employers and employees are exempt from payroll taxes on employer contributions to a qualified retirement plan. Employee elective deferrals (contributions) to 401(k)s are exempt from payroll taxes.

Employee elective deferrals (contributions) to 401(k)s are exempt from payroll taxes.

All of the following are advantages of a 401(k) plan except: Select one: Employees are permitted to shelter current income from taxation in a 401(k) plan Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability Earnings grow tax-deferred until distributed Employers can establish 401(k) plans with minimal expense

Employers can sponsor 401(k) safe harbor plans without committing to annual contributions and without creating a deferred liability Answer b is false, and thus not an advantage of 401(k) safe harbor plans. Employers are generally required under the safe harbor rules to make either a matching contribution or a contribution to all employee's eligible for the plan whether they contribute or not.

Which of the following entities is unable to establish a 401(k) plan? Select one: Government entity LLC Partnership Tax-exempt entity

Government entity A government entity can no longer establish a 401(k) plan. The remaining entities may establish a 401(k) plan.

Mikael opened a fabulous restaurant ten years ago. The food is so exceptional that the restaurant has become one of the top spots in the city. Mikael, age 55, is the sole owner with compensation of $280,000. Mikael's son Jamel, age 28, is the master chef with compensation of $100,000. Jamel has been with the restaurant full time since he turned 18. Mikael also employs 15 other individuals whose ages range between 25 and 35 and have compensation on average of $40,000 per year. Mikael wants to establish a profit sharing plan. Which of the following statements is true? Select one: If Mikael selected the standard allocation method and the plan contributes 10 percent per individual, the plan will contribute $56,000 to Mikael's account If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased Considering the needs and wants of Mikael and Jamel, an age-based profit sharing plan is the best plan for both of them A new comparability plan is the least expensive, simplest way to meet both Mikael and Jamel's retirement needs

If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased By using permitted disparity, or integration with Social Security, Mikael can increase the contribution to both himself and Jamel. Answer a is false because the covered compensation limit is $280,000 for 2019; thus, the contribution to Mikael's account using a standard allocation of 10% is $28,000. Answer c is false because an age-based profit sharing is not necessarily in Jamel's best interest. The facts say that the 15 other employees range from age 25 to age 35, with some of these employees being older than Jamel. In this instance, some employees might be allocate d a greater share of the contribution than Jamel. Answer d is false because a new comparability plan is generally more expensive to administer than other plans.

Vandalay Industries operates a qualified retirement plan on behalf of its employees. The plan has entrance dates on the first day of each calendar quarter, based on the plan year. The plan operates on a calendar year basis. On January 5, 2018, Jason turned 21 years old and celebrated four years of service. On July 27, 2018, Jennifer, age 23, celebrated her one-year anniversary of employment. On what date was Jason eligible to enter the plan? Select one: January 1, 2018 April 1, 2018 July 1, 2018 January 1, 2019

January 1, 2018 January 5, 2018 - Jason turns 21 April 1, 2018 - Next entry date Jason had four years of service on his 21st birthday. The correct answer is: April 1, 2018

Andrew is a small business owner and wants to install a qualified plan that has specific requirements. Which of the following plans meets the following list of requirements? Qualified under IRC Section 401(a). Permits at least 25 percent of employer securities to be invested in the plan. Can use forfeitures to reduce plan contributions. Does not require a joint and survivor annuity distribution option. Select one: Profit sharing plan 403(b) plan Money purchase plan Cash balance plan

Profit sharing plan

Andrew is a small business owner and wants to install a qualified plan that has specific requirements. Which of the following plans meets the following list of requirements? Qualified under IRC Section 401(a). Permits at least 25 percent of employer securities to be invested in the plan. Can use forfeitures to reduce plan contributions. Does not require a joint and survivor annuity distribution option. Select one: Profit sharing plan 403(b) plan Money purchase plan Cash balance plan

Profit sharing plan Requirement 1 eliminates the 403(b) plan. Requirement 2 and 4 limit the choice to a profit sharing plan and requirement 3 means that it could be any plan. The only correct answer is profit sharing plan.

Yasko, who owns Y2 Consulting, wants to establish a retirement plan that allows him to contribute, but that also shares the burden with the employees. Which of the following is the best plan for Yasko? (CFP Review Hot Topics' Quiz, July 2021) Profit sharing plan SEP Profit sharing plan with a cash or deferred arrangement New comparability plan

Profit sharing plan with a cash or deferred arrangement

Which of the following statements is true? Select one: Profit sharing plans may not offer in-service withdrawals Pension and profit sharing plans are both subject to mandatory funding requirements Profit sharing plans allow annual employer contributions up to 25 percent of the employee's covered compensation The legal promise of a profit sharing plan is to pay a pension at retirement

Profit sharing plans allow annual employer contributions up to 25 percent of the employee's covered compensation Answer c is the only true statement. Profit sharing plans allow annual contributions of up to 25 percent of covered compensation. Answer a is false because profit sharing plans can allow in-service withdrawals. Answer b is false because while pension plans are subject to mandatory funding standards, profit sharing plans are not. Answer d is false because the legal promise of a profit sharing plan is the deferral of compensation and the legal promise of a pension plan is to a pay a pension at retirement.

Which of the following information is most important to gather from an employer before making a recommendation for a qualified retirement plan? (CFP Review Hot Topics' Quiz, July 2021) Employee census information Stability of cash flows Retirement needs of the employees The desire for employees to be able to contribute

Stability of cash flows

Which of the following information is most important to gather from an employer before making a recommendation for a qualified retirement plan? (CFP Review Hot Topics' Quiz, July 2021) Employee census information Stability of cash flows Retirement needs of the employees The desire for employees to be able to contribute

Stability of cash flows While the other information is also important in identifying a specific type of qualified plan, before a qualified plan can be recommended, it should be determined that contributions can be made on at least a "substantial and recurring" basis.

Danny would like to determine his financial needs during retirement. All of the following are expenditures he might eliminate in his retirement needs calculation except: Select one: The $200 per month he spends on drying cleaning for his work suits. The $1,500 mortgage payment he makes that is scheduled to end five years into retirement. The FICA taxes he pays each year. The $2,000 per month he puts into savings.

The $1,500 mortgage payment he makes that is scheduled to end five years into retirement.

ABC Company has three employees: Ann, Brenda, and Curtis. Their compensation is $50,000, $150,000, and $200,000 respectively. ABC is considering establishing a straight 10% profit sharing plan or an integrated profit sharing plan using a 10% contribution for base compensation and 15.7% for excess compensation. Which of the following statements are correct? Select one: If the integrated plan is selected, then the total contribution for all employees is $62,800. The effect of the integrated plan results in an increase in Brenda's contribution of $975. If the integrated plan is selected, the base contribution for all employees is $56,000. If the integrated plan is selected, Curtis' total contribution is $31,400.

The effect of the integrated plan results in an increase in Brenda's contribution of $975.

Which of the following is not true regarding profit sharing plans? Select one: The plan is established and maintained by the individual employee Allows employees to derive benefit from profits of the company Profit sharing plans cannot discriminate in favor of officers and shareholders 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

The plan is established and maintained by the individual employee Answer a is not true regarding profit sharing plans. A profit sharing plan is established and maintained by the employer. The remaining options are true statements.

Which of the following expenditures will most likely increase during retirement? Select one: Clothing costs Travel FICA Savings

Travel

Rex, age 47, an employee at Water Waste, is considering contributing to a 401(k) plan during 2019. Which of the following statements are true? Select one: Rex can make a $25,000 elective deferral contribution to a 401(k) plan for 2019. If Rex does make an elective deferral contribution, the amount is not currently subject to income or payroll taxes Rex can contribute $19,000 to a 401(k) plan and an additional $19,000 to a 401(k) Roth account in the current year Water Waste must deposit Rex's elective deferral contribution to the plan as soon as reasonably possible

Water Waste must deposit Rex's elective deferral contribution to the plan as soon as reasonably possible Rex can only make a $19,000 contribution for 2019. He would only be able to contribute $25,000 if he were over age 50. Employee deferrals are subject to payroll tax but not income tax. Rex cannot exceed the maximum deferral contribution amount of $19,000 by contributing to both a 401(k) and a 401(k) Roth account.

What is the term for the period of time a person is expected to be in the work force? Select one: Work Life Expectancy Remaining Work Life Expectancy Retirement Life Expectancy Surviving Life Expectancy

Work Life Expectancy

Southside Hitman, Corp has 125 employees. One hundred of these employees are nonexcludable and 25 of those are highly compensated (75 are nonhighly compensated). The company's qualified profit sharing plan benefits 21 of the highly compensated employees and 55 of the nonhighly compensated employees. Does the plan meet the safe harbor coverage test? Select one: No, the percent covered is 50% Yes, percent covered is 73.3% No, percent covered is 73.3% Yes, percent covered is 50%

Yes, percent covered is 73.3%

The Monsters of the Midway have a qualified profit sharing plan that covers 60 of the 100 (60%) nonexcludable NHC employees and 40 of the 50 nonexcludable HC employees. Do the Monsters of the Midway pass the ratio percentage test? Select one: No, percent covered is 75% Yes, percent covered is 75% Yes, percent covered is 67% No, the percent covered is 67%

Yes, percent covered is 75%

Jeter is 56 years old and owns "Over-rated" Short Stop Sandwiches, a very successful deli in NY City. He sponsors a 401(k) plan with a dollar-for-dollar match up to four percent. The NHCEs deferred three percent this year, while the HCEs deferred six percent. Should he be concerned? (CFP Review Hot Topics' Quiz, July 2021) No. The plan meets the ADP test. No. The plan is a safe harbor plan. Yes. He can only fix the problem with a corrective distribution. Yes. He can fix the problem with a qualified non-elective contribution.

Yes. He can fix the problem with a qualified non-elective contribution.

Jeter is 56 years old and owns "Over-rated" Short Stop Sandwiches, a very successful deli in NY City. He sponsors a 401(k) plan with a dollar-for-dollar match up to four percent. The NHCEs deferred three percent this year, while the HCEs deferred six percent. Should he be concerned? (CFP Review Hot Topics' Quiz, July 2021) No. The plan meets the ADP test. No. The plan is a safe harbor plan. Yes. He can only fix the problem with a corrective distribution. Yes. He can fix the problem with a qualified non-elective contribution.

Yes. He can fix the problem with a qualified non-elective contribution. The plan does not meet the ADP test. If the NHCEs deferred 3%, then the HCEs could only defer 5%. The plan is not a safe harbor plan, even though it provides a benefit equal to that required by a safe harbor plan. The plan is not stated to be a safe harbor plan, which requires the employer to either match 100% of the first 3% contributed + 50% of the next 2% contributed, or provided a 3% nonelective contribution to all eligible employees. In a safe harbor plan, the employer contributions are 100% immediately vested (we don't know if they are 100% vested immediately unless the question tells us that or tells us it is a safe harbor plan). He could fix the ADP issue with either a corrective distribution from the HCEs, or with a QNEC or a QMC.

What is a qualified retirement plan that pays a benefit, usually determined by a formula, to a plan participant for the participant's entire life during retirement? Select one: a pension plan a new comparability plan an age-based profit sharing plan target benefit plan

a pension plan

What is a qualified retirement plan that pays a benefit, usually determined by a formula, to a plan participant for the participant's entire life during retirement? Select one: a pension plan a new comparability plan an age-based profit sharing plan target benefit plan

a pension plan

Janine is a small business owner and is considering implementing a qualified plan. She comes to you, as her CFP professional, for advice. Above all, Janine does not want to assume the investment risks of her employees and she does not want to be forced into mandatory funding of the plan. Which qualified retirement plan do you feel is her best option? Select one: a profit sharing plan a defined benefit plan a money purchase plan a cash balance plan

a profit sharing plan a profit sharing plan and thus the employee is responsible for the investment risk a defined contribution plan and thus does not require mandatory funding

Janine is a small business owner and is considering implementing a qualified plan. She comes to you, as her CFP professional, for advice. Above all, Janine does not want to assume the investment risks of her employees and she does not want to be forced into mandatory funding of the plan. Which qualified retirement plan do you feel is her best option? Select one: a profit sharing plan a defined benefit plan a money purchase plan a cash balance plan

a profit sharing plan a profit sharing plan and thus the employee is responsible for the investment risk a defined contribution plan and thus does not require mandatory funding

Under which type of qualified plan does an employer assume the investment risk? Select one: cash balance pension plan money purchase pension plan profit sharing plan 401(k) Plan

cash balance pension plan A cash balance pension plan is a defined benefit pension plan. Under a defined benefit plan, the employer assumes the investment risk.

Which of the following needs generally increases in retirement? Select one: health care mortgage payments Social Security taxes savings

health care

When calculating a retirement needs analysis, what rate of return is required in determining the lump sum needed on the first day of retirement? Select one: real rate of return nominal rate of return annualized rate of return dollar-weighted return

real rate of return


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