Employee Benefits Quiz 3

The "top-paid group" of employees for a year is the group of employees in the top 25%, ranked on the basis of compensation paid for the year. True False

false

Qualified plans and IRAs may be subject to both estate tax and income tax True False

a

Which of the following defined benefit plan distribution options is usually the automatic form of benefit for an unmarried plan participant? life annuity joint and survivor annuity period-certain annuity lump sum distribution

a

A pension plan is considered fully insured for the plan year if it meets all of the following requirements, except the plan is funded exclusively by the purchase of individual insurance contracts. the plan permits only highly compensated employees the right to purchase life insurance contracts from the plan at cash surrender value. no rights under the contracts have been subject to a security interest during the plan year. premiums have been paid without lapse (or the policy has been reinstated after a lapse). no policy loans are outstanding at any time during the plan year.

b

All group insurance programs offered to employees must comply with ERISA reporting and disclosure requirements. True False

b

Bob died in 2015 at age 60. Bob named his spouse, Jessica (age 58), as beneficiary of his qualified plan. Jessica can roll over the qualified plan assets to a traditional IRA. If she does so, minimum distributions from the IRA must begin in 2018. If Jessica does not roll over the qualified plan assets to a traditional IRA, minimum distributions from the IRA must begin in 2016. Jessica can roll over the qualified plan assets to a traditional IRA. If she does so, minimum distributions from the IRA must begin when Jessica attains age 70½. If Jessica does not roll over the qualified plan assets to a traditional IRA, minimum distributions from the IRA must begin when Jessica attains age 70½.

c

A qualified plan must satisfy which of the following tests? ratio percentage test average benefit test highly compensated test either a or b either b or c

d

ERISA requires report and disclosure of benefits to plan participants under the Summary Plan Description Summary Annual Report Individual Accrued Benefit Statement all of the above only a and b

d

For a defined contribution plan, annual additions include which of the following? employer contributions employee salary reductions plan forfeitures all of the above only a and b

d

If the death benefit is payable under a life insurance contract held by the qualified plan, the pure insurance amount of the death benefit is taxed at a rate that is higher than usual taxed at a rate that is lower than usual tax deferred excludable from income taxation

d

In a rush to get a qualified retirement plan installed before the deadline for the year, the owner of Baxter Concrete failed to get a determination letter from the IRS. Five years later, Baxter is audited. If the IRS finds a disqualifying provision or if an essential provision is missing from Baxter's plan, Baxter's tax deduction for the year being audited could be lost. Baxter's employees could be required to pay tax on their vested benefits. Baxter's plan fund could lose its tax-exempt status. all of the above only a and b

d

Social Security integration reduces the cost of offering a qualified plan allows an employer to make greater contributions or benefits for highly paid employees must maintain a certain ratio of contributions to nonhighly compensated individuals versus highly compensated individuals to retain "permitted disparity" only a and b only a and c

d

The "small welfare plan exemption" that exempts an employer from filing an annual report applies to welfare plans with fewer than 100 participants that are fully insured that are paid out of employer's general assets all of the above only a and b

d

The owner of Hilton Tours is considering installing a money purchase plan and integrating it with Social Security. Which of the following is true? Social Security integration will allow Hilton Tours to make greater contributions to higher-paid employees Hilton's owner must use the excess method for integrating defined contribution formulas with Social Security Hilton's owner must use the offset method for integrating defined contribution formulas with Social Security a and b a and c

d

Advantages of using life insurance in a qualified plan include all of the following except predictable plan costs for the employer. life insurance is a very safe investment. retirement benefits can be guaranteed by the insurance company and employer. low-cost installation and service of the plan. greater rates of return on insurance cash value than alternative investments.

e

Sarah Tensley, owner of Riverwood Spas, a dealer for saunas and hot tubs, installed a qualified retirement plan in her business three years ago. Sarah's strength is in public relations and sales. She says "numbers make me nervous," so she has delegated the handling and investment of the retirement plan to a trustee. Sarah has freed herself from any fiduciary responsibility, having transferred all of that responsibility to the plan trustee Sarah should be sure that her liability insurance covers any liabilities that arise out of breach of fiduciary responsibility Sarah can reimburse the plan trustee for any losses the trustee might incur as a result of performing fiduciary duties a and b b and c

e

For purposes of PTE 92-6, disqualified people who could not purchase life insurance for you from a qualified plan include your sibling's spouse. True False

true

The employee benefit plans of state, federal, or local governments or governmental organizations are exempt from ERISA. True False

true

The plan is allowed to pay a reasonable fee for legal, accounting, or other services performed by a party-in-interest. True False

true

The ratio percentage test states that a qualified plan must cover a percentage of nonhighly compensated employees that is at least 70% of the percentage of highly compensated employees covered. True False

true