FHCE 4210 Exam 2 UGA

Which of the following is a basic provision of a money purchase pension plan? Question options: In establishing such a plan, the employer typically agrees to make an annual contribution for each eligible employee as a fixed percentage of compensation. Forfeitures from a nonvested participant's account must be applied to reduce the employer contribution to the plan. Forfeitures from a nonvested participant's account must be reallocated proportionately among remaining plan participants. Before-tax salary reductions or elective deferrals are subject to prescribed limitations on amounts.

A

Which of the following is a unique provision of a Keogh (self-employed) plan? Question options: The deduction available for an owner-employee of the business is based on a specified definition of net income. A Keogh is required to be adopted as a defined contribution plan. For Keogh profit-sharing plans, there is a promised benefit available to a common-law employee. A Keogh plan may only cover the self-employed owner-employee.

A

Which of the following types of retirement plans is insured by the Pension Benefit Guaranty Corporation (PBGC)? Question options: A traditional defined benefit pension plan A target benefit pension plan A money purchase pension plan An ESOP

A

Which of the following vesting schedules may be used to accrue qualified defined benefit pension plan benefits attributable to regular (non-top-heavy) employer contributions? Question options: 100% cliff vesting after 5 years of service 20% vesting after 3 years of service and 100% vesting after 10 years 30% vesting after 4 years of service and 100% vesting after 12 years 100% cliff vesting after 7 years of service

A

Which one of the following statements correctly describes the purpose of the controlled group rules? A. They are intended to prevent discrimination against nonhighly compensated employees through the use of separate entities. B. They are intended to prevent discrimination against highly compensated employees through the use of separate entities. C. They are intended to promote the use of separate entities. D. They are intended to afford an employer/qualified plan sponsor flexibility in plan design.

A

In a qualified stock bonus plan, Question options: annual contributions of employer stock are mandatory taxation of the net unrealized appreciation in employer stock may be deferred until sale of the stock no more than 10% of plan assets may be invested in employer securities older employees are favored at the expense of younger employee-participants

B

In the ratio test used to determine whether a qualified plan is nondiscriminatory, what is the minimum percentage of nonhighly compensated employees who must be covered (as compared to the percentage of covered highly compensated employees)? Question options: 51% 70% 60% 75%

B

Janice, age 54, has an annual salary of $120,000 and participates in a traditional Section 401(k) plan sponsored by her employer. The plan provides for a 50% company match on the first 6% of an employee's salary deferred. If Janice makes the maximum elective deferral for 2018 (including catch-up contributions), what additional amount can her employer contribute on her behalf without exceeding the annual additions limit? A. $26,900 B. $32,900 C. $36,500 D. $55,000

B

A leveraged ESOP is a type of defined contribution plan that may borrow money in the name of the plan.

TRUE

A qualified plan provides for an employer deduction in the year of plan contribution.

TRUE

An advantage of a defined contribution category of qualified plans is that younger employees generally benefit through the accumulation of earnings in individual accounts.

TRUE

ERISA requires reporting and disclosure of plan information to the IRS.

TRUE

The higher the turnover rate assumed by the actuary, the lower the required annual employer contribution and cost.

TRUE

The purpose of ERISA is to protect the interests of employers and plan fiduciaries.

False. ERISA protects the interests of participants/employees.

In 2018, what is the maximum amount an employee under the age of 50 may contribute to a traditional Section 401(k) plan as an elective deferral? Question options: $24,500 $18,500 The lesser of 100% of compensation or $55,000 annually $12,500

B

What is the limit on the maximum annual deduction that may be taken for employer contributions to a traditional defined benefit pension plan in 2018? Question options: The lesser of 100% of employee compensation or $55,000 annually The amount necessary to provide the present value of a lump-sum benefit at age 62 The amount required to meet minimum funding standards The deduction for employer contributions is limited to 25% of aggregate covered compensation, up to $275,000 per participant

??

In a cash balance pension plan, which of the following provisions is guaranteed by the employer-sponsor? Question options: The interest rate credit A specific monthly pension at normal retirement age The medium of stock as a funding vehicle The plan costs

A

In a traditional defined benefit pension plan, what is the maximum annual pension benefit allowable under the law during 2018? Question options: The lesser of 100% of the participant's average compensation in the highest 3 years of consecutive service with the employer or $220,000 annually The greater of 100% of the participant's annual compensation or $55,000 annually The greater of 100% of the participant's average compensation in the 5 years immediately preceding normal retirement age or $100,000 annually The lesser of 100% of the participant's annual compensation or $275,000 annually

A

Janet is 59 and a new client for Larry, a CFP® professional. They have just signed the client engage- ment letter. Janet's financial planning goals include determining where she stands in her retirement planning. She would like to retire a few years earlier than her normal retirement age of 67 but is not certain she has the retirement assets in place to do so. Janet has worked for Sell-Buy, Inc., for 20 years and is a participant in the company's traditional defined benefit pension plan. Her employer's retirement plan offers retirement at age 60. Her salary is $275,000 annually and her salary increases should continue to be as consistent as they have been in the past. Janet is wondering what her pro- jected benefit will be and if it will be enough for her early retirement. What should Larry do next to assist Janet in attaining her retirement planning goal? A. Larry should request all the documents Janet has available on her retirement plan, her income history, all of her other assets and liabilities, income and expenses, and any other documenta- tion she has on any other investments she has that could be available for retirement planning. B. Larry should call the plan administrator and ask what Janet's benefit will be if she retires earlier than her normal retirement age. C. Larry should recommend that Janet continue to work until her normal retirement age to allow time to accrue an increase benefit from her defined benefit pension plan. D. For the next few months, Larry should monitor the performance of Janet's investments and cal- culate Janet's anticipated retirement plan benefit to see if her goal is achievable.

A

When is a cash balance pension plan most often used? Question options: When an employer already has a well-funded traditional defined benefit pension plan and is desirous of cost savings with respect to its sponsored retirement plans When an employer has an existing defined contribution plan and wishes to benefit primarily younger employee-participants When an employer has a simplified plan and wishes to increase complexity and requirements of plan administration When a self-employed individual wishes to avoid limitations on plan benefits and contributions that otherwise apply to common law employees

A

Which of the following is a basic difference between a target benefit pension plan and a money purchase pension plan? Question options: The target benefit pension plan favors older participant-employees. The money purchase pension plan requires lower annual employer contributions. The investment risk is borne by the employee. Loans are available from the respective plans.

A

In 2018, DEF Corporation maintains an employee-covered compensation totaling $100,000. The employees of DEF Corporation also make elective deferrals to the company's defined contribution qualified plan of $10,000. What is the total amount that DEF may take as an employer deduction for employer contributions made to its qualified plan in 2018? A. $10,000 B. $25,000 C. $27,500 D. $100,000

B

ABC Corp. is considering establishing a qualified plan and has the following objectives: ■❚ Simplicity ■❚ Ability of the plan to be integrated with Social Security ■❚ Funding flexibility ■❚ Ability to invest in company stock in an unrestricted manner ■❚ Employees can make in-service withdrawals ■❚ Distributions of the plan retirement benefits in cash if the company so chooses ■❚ Immediate tax deduction for the value of the stock contributed to the plan Which one of the following types of qualified plans would meet ABC's objectives? A. ESOP B. Stock bonus plan C. Money purchase pension plan D. Cash balance pension plan

B

Can a policy loan be outstanding under a fully insured plan funding approach and still be exempt from the minimum funding standards of Section 412 of the Tax Code? A. Yes B. No

B

Jean has given her CFP® professional, Harry, information about the qualified retirement plan she wants to implement in her closely-held C corporation. She has given him a census of her employees which includes dates of hire, compensation, and position in the company. She told Harry the gen- eral staff stays an average of 4 years, but her small executive staff is made up of family members and does not turn over. Jean is interested in determining which vesting schedule would be best if she chooses a qualified plan. She wants to minimize the impact her employee turnover has on plan assets, saving the company money on retirement plan costs. What does Harry do next? A. Harry tells Jean a qualified plan that can have a 5-year cliff vesting schedule is best for her company. B. Harry analyzes and evaluates the information Jean has given to him before making a recommendation. C. Harry considers alternatives to the qualified plan Jean has selected and gives her vesting schedule suggestions based on those plans as an alternative. D. Harry recommends a vesting schedule and waits for feedback from Jean on his recommendation.

B

Kelly operates a business as a sole proprietor and maintains a Keogh profit-sharing plan. The contribution rate to this plan is 25%. If Kelly's net Schedule C income for the business for the year is $100,000 and his deductible self-employment tax is $7,065, what is the amount of Kelly's deductible contribution to the profitsharing Keogh plan for the year 2018? Question options: $17,174 $18,587 $20,000 $25,000

B

Marten Publications has just implemented a safe harbor Section 401(k) plan. Which of the following may be avoided with the safe harbor arrangement? 1. ADP test 2. ACP test 3. Top-heavy rules 4. General nondiscrimination tests (coverage rules) A. 1 and 2 B. 1, 2, and 3 C. 1, 2, and 4 D. 3 and 4

B

Question 5 1 / 1 point Which of the following is a disclosure item relating to a qualified defined benefit pension plan that must be automatically distributed to employee-participants? Question options: A quarterly personal benefits statement A Summary Plan Description (SPD) Any supporting plan documents A copy of the plan's annual full financial report

B

The deductible contribution to a money purchase pension plan on behalf of a self-employed individual whose net income from self-employment is $20,000 and whose deductible SE tax is $1,413 is limited to A. $3,000 B. $3,717 C. $4,714 D. $5,000

B

Which of the following employees are HCEs of XYZ Corporation for the year 2018? Assume the top 20% election was made by XYZ Corporation. 1. Bill, who owns 10% of XYZ and is an employee 2. Mary, the president of XYZ, whose compensation was $130,000 last year and is in the top 20% of all paid employees 3. Ralph, an employee salesman, who earned $135,000 last year and was the top paid employee at XYZ this year 4. Joe, who earned $115,000 last year as XYZ legal counsel and is not in the top 20% of all paid employees A. 1 and 2 B. 1, 2, and 3 C. 2 and 3 D. 2, 3, and 4

B

Which of the following is an example of a cross-tested plan? 1. Age-based profit-sharing plan 2. Traditional profit-sharing plan 3. New comparability profit-sharing plan 4. Profit-sharing plan with a Section 401(k) feature A. 1 and 2 B. 1 and 3 C. 2 and 3 D. 2 and 4

B

Which of the following plan contributions must be immediately (100%) vested to the employee- participant? 1. Employer contributions in a terminated qualified plan 2. Employer contributions to a defined benefit plan 3. Employee contributions to a defined contribution plan 4. Employer contributions on behalf of an employee made eligible according to the 21-and-1 rule A. 1 only B. 1 and 3 C. 2 only D. 2 and 4

B

Which one of the following is a feature of a cash balance pension plan? A. It allows for investment discretion on the part of each employee-participant. B. There is a guaranteed minimum investment rate of return. C. It tends to favor older plan entrants. D. The plan is not subject to the minimum funding standards that also apply to traditional defined benefit pension plans.

B

ABC Co. employs 200 eligible employees, 20 of whom are HCEs. Sixteen of the 20 HCEs and 125 of the 180 non-HCEs benefit from the ABC qualified pension plan. The average benefits accrued for the HCEs are 8%. The average benefits accrued for the non-HCEs are 3%. Which one of the fol- lowing statements is CORRECT with respect to the coverage tests applied to the ABC plan? A. The plan meets the ratio test and the average benefits percentage test. B. While the plan does not meet the ratio test, it meets the average benefits percentage test. C. The plan does not meet the average benefits percentage test, but it meets the ratio test. D. The plan does not meet the ratio test or the average benefits percentage test.

C

ABC Corporation maintains a profit-sharing plan with Section 401(k) provisions on behalf of its employees. The company matches dollar-for-dollar up to 3% of all contributions made by an employee. Josh, age 40, is an employee of ABC Corporation and is paid $100,000 for 2018. Assuming he defers the maximum elective deferral contribution of $18,500 in 2018 and that ABC allocates no forfeitures to his account for that year, how much can the company contribute as a profit-sharing contribution to Josh's account (exclusive of the mandatory employer-match)? A. $3,000 B. $18,500 C. $33,500 D. $36,500

C

Apollo Company sponsors a defined contribution plan that provides a base contribution of 12.3% of employee compensation. Assuming the integration level equals the Social Security taxable wage base, what is the maximum excess percentage allowed under the permitted disparity rules? A. 5.7% B. 12.3% C. 18.0% D. 25.0%

C

Blake is a CFP® professional and was introduced to Karl by Blake's sister, Jan, today. Jan works at the bank that has Karl's business and personal accounts. When she refers a client to Blake, she is given a small finder's fee. Karl is the sole shareholder of a closely held corporation and is consider- ing various profit-sharing plan alternatives for providing a qualified retirement plan to his employees and saving for his own retirement. He feels he needs the advice of a financial planning professional and likes what he has learned of Blake's services. What is Blake's next step in helping Karl choose the best profit-sharing plan alternative? A. Blake asks for all the documentation about Karl's personal financial status and gets detailed information on the company's finances, employee census, and more details on what Karl wants to accomplish with the retirement plan. B. Blake recommends a profit-sharing plan with a Section 401(k) feature to allow employees to also contribute to their own retirement. C. Blake discusses the financial planning process with Karl and explains the scope of services he will provide; he also discloses in writing his relationship to Jan and her finder's fee and issues a client engagement letter to Karl. D. Because Karl wants to choose a retirement plan for his corporation, Blake must decline to provide any services as he can only provide financial planning services to individuals and not entities.

C

If a defined benefit pension plan is determined to be top heavy, what is one practical significance of this determination? Question options: Different coverage requirements and nondiscrimination tests apply. Different eligibility requirements come into effect. One of two accelerated vesting schedules must be used. One of two maximum contribution and benefit formulas must be used.

C

If a qualified plan has been designed using normal eligibility requirements, which combination of the following would require an employee to be eligible to participate in the plan? 1. 18 years of age 2. 21 years of age 3. Completion of 1 year of service; at least 1,000 hours worked per year 4. Completion of 3 years of service; average 600 hours per year A.1 and 3 B.1 and 4 C.2 and 3 D.2 and 4

C

In a traditional Section 401(k) plan, which of the following must be considered in complying with the maximum annual additions limit? 1. Employee elective deferrals 2. Catch-up contributions for an employee age 50 or older 3. Qualified nonelective contributions 4. Qualified matching contributions A. 1 and 2 B. 1, 2, and 4 C. 1, 3, and 4 D. 3 and 4

C

In general, a qualified plan cannot require, as a condition of participation, an employee to complete a period of service with the employer extending beyond the later of the date on which the employee completes 1 year of service or reaches age Question options: 25 years 30 years 21 years 18 years

C

Scott Benjamin is a fiduciary of the XYZ qualified retirement plan. Which governmental entity regulates his actions as a fiduciary? A. ERISA B. PBGC C. DOL D. SOS

C

The actual deferral percentage (ADP) test is a special nondiscrimination test that must be met by a traditional Section 401(k) plan. What is the maximum allowable deferral percentage for the highly compensated employees group under this test, if the nonhighly compensated employees' ADP is 10%? Question options: 20% 7% 12.5% 10%

C

Which statement about a traditional profit-sharing plan is NOT correct? A. Profit-sharing plans are qualified defined contribution plans. B. Profit-sharing plans are suitable for companies that have unstable cash flows. C. A company that adopts a profit-sharing plan is required to make contributions each year. D. Company profits are not a prerequisite for employer contributions.

C

A client's employer has recently implemented a traditional Section 401(k) plan as part of its profit-sharing plan. The client has been advised by a financial planner not to elect to receive bonuses in cash but to instead contribute them to the Section 401(k) plan. Why is this good advice? Question options: The client is immediately vested in all employer matching contributions and their accrued benefits. The client will not pay current federal income taxes on amounts distributed from the Section 401(k) plan. The client will not pay Social Security (FICA) taxes on amounts paid into the Section 401(k) plan The client is immediately vested in all elective deferrals and their accrued benefits.

D

ABC Corporation sponsors a money purchase pension plan for its employees. ABC utilizes plan forfeitures to reduce future employer plan contributions. Therefore, which of the following factors must be considered in determining the maximum annual additions limit? 1. Investment earnings 2. Forfeitures 3. Rollover contributions 4. Employer and employee contributions to all defined contribution plans A. 1, 2, and 3 B. 1 and 3 C. 2 and 4 D. 4 only

D

All of the following with respect to a Roth 401(k) are correct EXCEPT : A. the maximum elective deferral (younger than age 50 participant) to a Roth 401(k) is $18,500 for 2018 B. individuals age 50 or older may contribute an additional $6,000 to a Roth 401(k) for 2018 C. elective deferral contributions and catch-up contributions are made with after-tax dollars D. the ability to make contributions to a Roth 401(k) is phased out based on the taxpayer's AGI

D

Ben Scott, age 42, wants to establish a qualified defined contribution plan for his small business. Ben currently earns $115,000 annually. He employs 4 people whose combined salaries are $58,000 annually and ages range from 24 to 30. The average employment period is 31⁄2 years. Which vest- ing schedule is best suited for Ben's qualified plan? A. Three-year cliff vesting B. Three-to-seven-year graded vesting C. Five-year cliff vesting D. Two-to-six-year graded vesting

D

Fernando, age 45, participates in his employer's defined benefit pension plan. This plan provides for a retirement benefit of 2% of earnings for each of his years of service with the company and, given Fernando's projected service of 20 years, will provide him with a benefit of 40% of final average pay at age 65. What type of benefit formula is this plan using? Question options: A flat benefit formula A discretionary formula A flat percentage of earnings formula A unit benefit formula

D

Gwen is 52 years old and just started a new job with ABC Industries. She is concerned about hav- ing enough income during her retirement that will begin when she reaches age 65. Gwen recently left XYZ Industries, her former employer, in part because XYZ did not sponsor a traditional defined benefit pension plan. ABC does sponsor such a plan, and Gwen has requested information from you about the plan's general provisions. Which of the following statements regarding defined benefit pension plans is(are) CORRECT? 1. They allow discretionary employer contributions. 2. They favor older employee-participants. 3. They require the services of an actuary on an annual basis. 4. They are insured by the PBGC. A. 1, 2, and 4 B. 2 only C. 2 and 3 D. 2, 3, and 4

D

Tommy's Meat Market is a small business with only 20 employees. The business has adopted a SIMPLE 401(k) plan for the benefit of its employees. It now wishes to implement another plan on their behalf. Which one of the following plans, if any, may Tommy's Meat Market adopt immediately? A. A simplified employee pension (SEP) plan B. A traditional profit-sharing plan C. A cash balance pension plan D. None of these

D

What is the IRS form that also serves as a qualified plan's annual financial report? Question options: Form 1040 Form 1120 Form 5200 Form 5500

D

Which of the following is a type of traditional defined benefit pension plan? Question options: An ESOP A target benefit pension plan A money purchase pension plan A fully insured Section 412 (e)(3) pension plan

D

Which of the following would increase the employer's annual contribution to a defined benefit pen- sion plan using a unit benefit formula? 1. Forfeitures are lower than expected. 2. Salary increases are higher than expected. 3. Investment returns are less than expected. 4. Benefits are cost-of-living adjusted as expected. A. 4 only B. 1 and 2 C. 2 and 3 D. 1, 2, and 3

D

Which statement(s) regarding a target benefit plan is(are) CORRECT? 1. The employee's benefit is not guaranteed by the employer. 2. The plan requires actuarial assumptions. 3. The maximum deductible employer contribution is 25% of covered payroll. 4. The participant's maximum annual addition is the lesser of 100% of compensation or $55,000 (2018). A. 1 and 4 B. 4 only C. 2 and 3 D. 1, 2, 3, and 4

D

Grant is age 51 and made an initial contribution of $10,000 to a Roth 401(k) during 2012. He made subsequent contributions of $6,000 annually for the next 4 years. In 2018, Grant took a $50,000 distribution from his Roth 401(k). It's been 5 years after the first contribution therefore his distribution is income tax free.

FALSE