Unit 1 Book 2 PFP

In 2019, Benjamin, age 45, worked for both RST Company and XYZ Enterprises, which are not part of a controlled group. Both companies maintain a profit-sharing plan. He earned $200,000 from RST Company and $250,000 from XYZ Enterprises this year. Benjamin also receives $5,000 per month in investment income. Forfeitures allocated to Benjamin under the XYZ Company plan were $4,000 for the year. What are the total additional employer contributions that can be made on behalf of Benjamin this year?

$108,000

Which of the following statements regarding top-heavy plans are CORRECT?

1. An accelerated vesting schedule is used when a defined benefit pension plan is top heavy. 2. Top-heavy defined benefit plans must provide a minimum benefit of 2% per year of service for up to ten years (20%) for all non-key employees.

Which of the following non-highly compensated employee(s) is(are) considered "covered" this year by an employer-sponsored retirement plan for purposes of satisfying the nondiscrimination coverage tests?

1. An employee who is eligible to participate in the company's Section 401(k) plan but has never participated in making elective deferrals. 2. An employee who has participated in his employer's profit-sharing plan for 10 years but the employer has announced there will be no contribution to the plan this year, but forfeitures are reallocated to remaining participants. 3. An employee who just satisfied the employer's traditional defined benefit plan eligibility requirements and entered the plan 6 months ago.

For which of the following reasons might an employer consider choosing a nonqualified plan over a qualified plan?

1. Greater flexibility. 2. Can discriminate in favor of highly compensated employees. 3.Subject to fewer ERISA reporting and disclosure requirements

Which of the following statements regarding aggregation rules contained in the Internal Revenue Code is (are) CORRECT?

1. Leased employee rules are aggregation rules that pertain to the leasing of individuals on a long-term, full-time basis and treating such individuals as employees for purposes of the coverage requirements. 2. Affiliated service group rules are aggregation rules that address situations in which related businesses work together to provide goods and services to the public.

Qualified retirement plans:

1. Must meet specific vesting requirements. 2. Have special tax advantages over nonqualified plans. 3. Must provide definitely determinable benefits

ERISA requires reporting and disclosure of defined benefit plan information to:

1. PBGC. 2. Plan participants. 3. Internal Revenue Service. 4. Department of Labor (DOL).

Which of the following retirement plans permit the deferral of taxable income for an individual's retirement?

1. Traditional IRA. 2. Roth IRA. 3. SIMPLE 401(k). 4. Deferred compensation plan.

Apollo Company sponsors a money purchase pension plan that provides a base contribution of 12.3%. Assuming the integration level equals the Social Security taxable wage base, what is the maximum excess percentage?

18%

Which of the following vesting schedules meets the minimum standard for vesting employer-matching contributions to a qualified plan?

2-to-6-year graded. 3-year cliff.

If a defined benefit pension plan has been designed using 3-to-7-year graded vesting, which of the following are minimum participation requirements for the plan?

21 years of age or older Has completed 1 year of service

A defined benefit pension plan established by a professional service employer is not required to be covered by the Pension Benefit Guaranty Corporation (PBGC) if the employer has:

25 or fewer employees.

Accelerated vesting schedules include which of the following?

3 year cliff 2 to 6 year cliff

Prohibited transactions are those that are not in the best interest of plan participants and include:

A loan between the plan and any party in interest. The acquisition of employer securities or real property in excess of legal limits. A transfer of plan assets to or use of plan assets for the benefit of a party in interest. The sale, exchange, or lease of any property between the plan and a party in interest.

Which of the following is the easiest type of retirement plan for an employer to adopt?

A prototype plan.

Which of the following statements regarding the coverage rules for qualified plans is(are) CORRECT?

A retirement plan can cover any portion of the workforce, as long as it satisfies 1 of the 3 coverage tests under Section 410(b).

Which of the following is NOT required to be distributed to qualified plan participants on an annual basis?

A summary plan description (SPD) Form 5500 A summary of material modification (SMM)

A qualified plan is:

A tax-efficient way to save for retirement.

Which of the following statements regarding a top-heavy plan is (are) CORRECT?

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%). 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. A top-heavy defined benefit pension plan must provide accelerated vesting.

Which of the following statements regarding the Employee Retirement Income Security Act (ERISA) is (are) CORRECT?

A) ERISA was enacted to protect the retirement interests of all plan participants, to establish equitable standards, and curtail perceived abuses. C) ERISA requires reporting and disclosure of information about retirement plans to the Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty Corporation, and plan participants. D) ERISA forbids discrimination in favor of highly compensated employees, restrictive vesting schedules that keep longtime participants from receiving benefits, and inadequate plan funding, which leads to bankrupt plans.

Which of the following statements regarding nondiscrimination rules is (are) CORRECT?

All qualified plans and Section 403(b) plans must be designed to satisfy the rule that a plan cannot discriminate in favor of highly compensated employees. Stock bonus plans are subject to the same nondiscrimination requirements as traditional profit-sharing plans. Because of the ADP nondiscrimination tests, a Section 401(k) plan can be relatively costly and complex to administer.

Which of the following statements regarding when employees' participation in a qualified retirement plan should begin is NOT correct?

An exception to the 21-and-one rule is the 3-year/100% rule that allows up to a 3-year service requirement if the employee is immediately 100% vested in employer contributions upon becoming a participant.

Qualified retirement plans:

Are subject to ERISA requirements. Offer tax deferred earnings to employees.

Which of the following are minimum coverage tests for qualified retirement plans?

Average benefits percentage test. Ratio test

Which of the following individuals is(are) highly compensated employee(s) of XYZ Corporation for qualified plan purposes for 2019? Assume the highly compensated election was made by the corporation.

Bill, who owns 10% of XYZ and is an employee. Mary, the president, whose compensation was $130,000 last year and who was in the top 20% of paid employees. Ralph, an employee salesman, who made $130,000 last year and was the top-paid employee in XYZ this year.

Pension plan services may be provided by:

Commercial Banks Insurance Companies Trust Companies

Which of the following types of plans generally require(s) coverage and eligibility requirements of at least age 21 and 1 year of service?

Defined benefit pension plan. Money purchase pension plan. Profit-sharing plan. Target benefit pension plan.

Scott is the fiduciary of the BSB retirement plan. The entity responsible for monitoring his actions as a fiduciary is:

Department of Labor

Which of the following types of qualified retirement plans do NOT allow integration with Social Security?

ESOP

In a Section 401(k) plan, which of the following must be considered in complying with the maximum annual additions limit?

Employee after-tax contributions. Employer qualified non-elective contributions. Employer qualified matching contributions.

Which of the following are included in the annual additions limit for defined contribution plans?

Employee elective deferral contributions. Employer contributions. Forfeitures from terminated non-vested participant accounts if reallocated to the remaining participants in the plan.

Which of the following plan contributions must be immediately (100%) vested to the participant?

Employer contributions in a terminated qualified plan. Employee contributions to a defined contribution plan.

Annual additions to qualified retirement plans include:

Forfeitures reallocated to plan participants. Employee contributions. Employer contributions.

Which of the following qualified plan reporting and disclosure documents is considered the "annual report" for the plan and must be filed annually with the IRS?

Form 5500

Dr. Bennet has established a profit-sharing plan for himself and his employees which is top heavy. He has made a 1% of compensation contribution to all non-key employee participants' accounts this plan year and a 5% contribution to his account. Which of the following statements is CORRECT?

He must contribute an additional 2% to each non-key employee participant's account.

Which of the following statements regarding the Employee Retirement Income Security Act (ERISA) are CORRECT?

It established equitable standards and curtailed potential retirement plan abuse. It is a federal law that sets legal guidelines for most private retirement, health, and welfare benefit plans.

The Employee Retirement Income Security Act of 1974 (ERISA) contains provisions related to which of the following?

It prohibits discrimination in favor of key employees. It prohibits inadequate funding of defined benefit plans.

Which of the following statements regarding the Pension Benefit Guaranty Corporation (PBGC) are CORRECT?

It was created under ERISA. It insures traditional defined benefit pension plans and cash balance pension plans. It insures plan participants against the loss of benefits due to pension plan termination.

Who of the following is a fiduciary for the XYZ Qualified Pension Plan?

Joe, the administrator for XYZ's pension plan. Bill, the investment manager for XYZ's pension plan. Mary, a CFP® professional, and the paid investment adviser of the XYZ Qualified Pension Plan. Ralph, the XYZ owner who selected Joe, Bill, and Mary

Which of the following persons could be classified as a highly compensated employee for 2019? Assume no special elections were made by the employer-sponsor for their retirement plans.

John, a 1% owner, who earned $150,000 in the previous year. Bill, a 6% owner, who earned $28,000 in the previous year. Mary, an officer who earned $130,000 in the previous year, and who is the 25th highest paid employee of 100 employees.

To avoid the coverage requirements in a qualified retirement plan, some employers may try to segregate their management employees from the rank-and-file employees by creating a related or subsidiary corporation. To close this loophole, which of the following aggregation rules found in the Internal Revenue Code (IRC) must employers adhere to?

Leased employee rules Affiliated service group rules Controlled rules

Nonqualified plans:

May defer taxes on compensation to employees. Are often used to supplement qualified retirement benefits to key employees.

For Employee Retirement Income Security Act (ERISA) or IRC purposes, all qualified plans are required to:

Meet minimum participation and coverage requirements. Contain provisions for top-heavy plan modifications. Meet minimum vesting standards.

Which of the following statements regarding qualified retirement plans is (are) CORRECT?

Money purchase pension plans, employee stock ownership plans (ESOP), target benefit pension plans and stock bonus plans are all examples of qualified retirement plans.

Which of the following plans allow the excess method of permitted disparity?

Money purchase pension plans. Defined benefit pension plans. Simplified employee pension (SEP)

Which of the following statements concerning qualified retirement plans is (are) CORRECT? 1. Cash balance pension plans, money purchase pension plans, employee stock ownership plans (ESOPs), and Section 403(b) plans are all examples of qualified retirement plans. 2. Target benefit pension plans, defined benefit pension plans, profit-sharing plans, and Section 457 plans are all examples of qualified retirement plans.

Neither 1 or 2

Which of the following retirement plans can be integrated with Social Security?

Profit-sharing plan. SEP. Money purchase pension plan. Defined benefit pension plan.

Which of the following is NOT an example of a qualified retirement plan?

Section 403(b) plan.

Which of the following is (are) a type(s) of defined contribution pension plan(s)?

Target benefit pension plan and money purchase pension plan.

Which of the following statements most accurately describes the funding of a noncontributory pension plan?

The employer contributes all of the funds.

Which of the following statements regarding Social Security integration and defined contribution plans are CORRECT?

The integration level can be less than the taxable Social Security wage base. The maximum permitted disparity will depend on whether the integration level is equal to the taxable wage base or below it. 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. The integration level cannot be greater than the Social Security taxable wage base.

Which of the following statements regarding prohibited transactions is NOT correct?

The lending of money or other extension of credit between the plan and a party in interest is not a prohibited transaction.

Pension Benefit Guaranty Corporation (PBGC) insurance coverage is required for which of the following plans?

Traditional defined benefit pension plan.

Each of the following are requirements imposed by law on qualified retirement plans EXCEPT:

limited employee participation

Regarding qualified plans, employers:

may secure a favorable advance determination letter from the IRS in order to ensure that the plan meets the requirements of a qualified plan.

ERISA requirements for qualified plans include:

reporting and disclosure. coverage and vesting. participation and fiduciary requirements.

The Department of Labor (DOL) issues:

rulings including Prohibited Transaction Exemptions (PTEs).

Nonqualified plan requirements include:

the employer's promise to pay the employee at some predetermined point in the future.

The ratio test requires that:

the percentage of non-highly compensated employees covered by the plan must be at least 70% of the percentage of highly compensated employees covered by the plan.

All of the following are responsibilities of the Pension Benefit Guaranty Corporation (PBGC) EXCEPT:

to provide insurance coverage for all qualified pension plans.