Module 1:
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
The maximum service requirement that a thrift plan may impose as a condition of participation is
two years.
RQZ Company employs 200 non excludible employees, 20 of whom are highly compensated. Sixteen of the 20 highly compensated and 125 of the non-highly compensated employees benefit from the RQZ qualified pension plan. The average benefits accrued for the highly compensated is 8%. The ratio test for the plan just listed is
86.8%
Which of these statements regarding a top-heavy retirement plan is false?
Defined benefit pension plans can be top heavy; defined contribution plans cannot.
What is the IRS form that also serves as a qualified plan's annual financial report?
Form 5500
George is an executive with the MAH Company. For 2021, the maximum annual contribution under a money purchase pension plan on behalf of a participant is the lesser of 100% of the employee's covered compensation, or
$58,000
Which of the following describe differences between tax-advantaged retirement plans and qualified plans? 1. IRA-funded employer-sponsored tax-advantaged plans may not incorporate loan provisions. 2. Employer stock distributions from a tax-advantaged plan do not benefit from NUA tax treatment.
1 and 2
Which of the following types of retirement plans allow integration with Social Security? 1. Defined benefit pension plan 2. Simplified employee pension (SEP) plan 3. Savings incentive match plan for employees (SIMPLE) 4. Employee stock ownership plan (ESOP)
1 and 2
Which of these statements regarding top-heavy plans is CORRECT? 1. An accelerated vesting schedule is used when a defined benefit pension plan is top heavy. 2. A qualified plan is considered top heavy if it provides more than 75% of its aggregate accrued benefits or account balances to key employees. 3. Top-heavy defined benefit plans must provide a minimum benefit of 2% per year of service for up to 10 years (20%) for all non-key employees. 4. For a top-heavy plan, a key employee is an employee who owns more than 3% of the employer with compensation greater than $140,000 (2021).
1 and 3
Which of these are CORRECT statements about the top-heavy rules? 1. An employer's minimum top-heavy contribution to a money purchase pension plan is the lesser of 3% of compensation per year for non-key employees or the highest contribution percentage made for a key employee if the highest contribution percentage is less than 3% of compensation. 2. An employer's top-heavy contribution to a money purchase pension plan must always be at least 3% of compensation per year for each employee. 3. Any employee with annual earnings from the employer in excess of $290,000 is considered a key employee in 2021. 4. For purposes of applying the 60% top-heavy test, benefits include any distributions made due to separation from service during the last year and any in-service distributions made during the last five years.
1 and 4
Which of the following is an Employee Retirement Income Security Act of 1974 (ERISA) requirement that qualified plans must meet? 1. Coverage 2. Participation 3. Vesting 4. Reporting and disclosure
1, 2, 3, and 4
Who of the following is a fiduciary for the XYZ Qualified Pension Plan? 1. Joe, the administrator for XYZ's pension plan 2. Bill, the investment manager for XYZ's pension plan 3. Mary, a CFP® professional, and the paid investment adviser of the XYZ Qualified Pension Plan 4. Ralph, the XYZ owner who selected Joe, Bill, and Mary
1, 2, 3, and 4
Qualified retirement plans should do which of the following? 1. They must meet specific vesting requirements 2. They have special tax advantages over non-qualified plans. 3. They must provide definitely determinable benefits 4. They require an annual profit to allow funding for the plan
1, 2, and 3
What are the requirements and effect of an eligible investment advice arrangement under the Pension Protection Act? 1. An eligible investment advice arrangement allows a plan fiduciary to give advice, including recommending her own proprietary funds without violating fiduciary rules. 2. The investment advisor's fees must be neutral. 3. An unbiased computer model certified by an independent expert to create a recommended portfolio for the client's consideration is used. 4. Investment advisors for IRAs may only use the unbiased computer model option when providing eligible investment advice.
1, 2, and 3
Which of the following plans allow the excess method of permitted disparity? 1. Money purchase pension plans 2. Defined benefit pension plans 3. Simplified employee pension (SEP) 4. Employee stock ownership plan (ESOP)
1, 2, and 3
Which of the following are CORRECT statements about the overall limits on employer contributions to and deductions for qualified plan contributions? 1.) An employer's deduction for contributions to a money purchase pension plan and profit sharing plan cannot exceed 25% of the participants' payroll. 2.) If a company has a defined benefit plan and a defined contribution plan and no employee is covered by both plans, the overall deduction limit does not apply. 3.) An employer's deduction for contributions to a defined benefit pension plan and profit sharing plan cannot exceed the lesser of the amount necessary to satisfy the minimum funding standards or 25% of the participants' payroll. 4.) A plan may lose its qualified status if the contribution for a participant exceeds IRC Section 415 limits.
1, 2, and 4
Which of the following is CORRECT about the permitted disparity (Social Security integration) rules for defined benefit plans? 1. A plan that provides a benefit for wages up to the integration level, plus a higher benefit for wages that exceed the integration level, is an integrated defined benefit excess plan. 2. A plan that provides that an employee's benefit otherwise computed under the plan formula is reduced by a fixed amount or formula amount in relationship with the person's Social Security benefit is an integrated defined benefit offset plan. 3. Covered compensation is the average of the participant's compensation not in excess of the taxable wage base for the three-consecutive-year period ending with or within the plan year. 4. The base benefit percentage is determined by calculating the benefits provided by the plan based on compensation below the integration level, and expressing these benefits as a percentage of compensation below the integration level.
1, 2, and 4
Which of the following are agencies that administer and ensure compliance with the federal laws that apply to qualified retirement plans? 1.Department of Labor (DOL) 2. Employee Retirement Income Security Agency (ERISA) 3. Internal Revenue Service (IRS) 4. Pension Benefit Guaranty Corporation (PBGC)
1, 3, and 4
Which of the following statements regarding a top-heavy plan is CORRECT? 1. A top-heavy defined benefit pension plan must provide accelerated vesting. 2. A top-heavy plan is one that provides more than 50% of its aggregate accrued benefits or account balances to key employees. 3. A top-heavy defined pension benefit plan must provide a minimum benefit accrual of 2% multiplied by the number of years of service (up to 20%). 4. For a top-heavy defined contribution plan, the employer must make a minimal contribution of 3% of annual covered compensation for each eligible non-key employee. If the contribution percentage for key employees is less than 3%, the contribution percentage to non-key employees can be equal to the key employees' percentage.
1, 3, and 4
What is the penalty for a prohibited transaction?
15%
Which of the following are minimum coverage tests for qualified retirement plans? 1. Minimum allowed discrimination 2. Average benefits percentage test 3. Ratio test 4. Maximum compensation test
2 and 3
Velvet Lawns, Inc., employs 26 full-time workers and provides a money purchase pension plan for eligible employees. All 26 employees are plan participants this year. Jack, the owner of the company, has an account balance of $134,000. The total of the account balances of all plan participants amounts to $215,000. Which of the following statements apply to this plan? 1. The plan would not pass the required coverage test and is therefore discriminatory. 2. The plan is top heavy. 3. The plan may use either a five-year cliff or three- to seven-year graded vesting schedule. 4. The plan must comply with requirements for minimum contributions to non-key employees.
2 and 4
Which of the following statements regarding Social Security integration and defined contribution plans is CORRECT? 1. The integration level can be less than the taxable Social Security wage base. 2. The maximum permitted disparity will depend on whether the integration level is equal to the taxable wage base or below it. 3. Integration can be used to enhance an owner's contribution to the plan if the owner's compensation is in excess of the Social Security wage base. 4. The integration level cannot be greater than the Social Security taxable wage base.
All of the Above
Which of the following would NOT be a permitted disparity for a defined benefit plan that uses Social Security integration?
An excess benefit percentage of 20%, if the base percentage is 15%
Susan is the fiduciary of the SLH retirement plan. The entity responsible for monitoring her actions as a fiduciary is
the DOL