Employee Benefits exam 1
13. Tax advantages of a qualified plan include which of the following? 1. Investment income earned from a qualified pension planned assets is never taxed. 2. Employer contributions to a qualified pension plan are taxable to the employee at the time the contributions are made.
1. False, income taxed when money withdrawn 2. False, taxed when money withdrawn.
14. Which of the following statements concerning benefit formulas is (are) correct? T/F 1. A flat amt formula provides a benefit that is related to both earning and service of the employee. 2. A unit benefit formula reflects an employee's earnings but not service.
1. False, related to a flat amount 2. False, reflects earnings AND service
15. Which of the following statements concerning 401 (k) plans is (are) correct? 1. employee salary deferrals for highly compensated employees generally must satisfy the actual deferral percentage (ADP) test. 2. In a 401K plan are employer matching contributions required.
1. True 2. False
16. Which of the following statements concerning post-ERISA legislative changes that have an effect on retirement planning is (are) true? 1. Laws have been changed so that corporations, self employed individuals and LLC have virtually the same opportunities under pension ruling. 2. The laws have added special tax advantages for distributions from qualified retirement plans.
1. True, regardless of how a company is organized it can sponsor the same types of plans 2. False, it has actually taken tax advantages away
23. Characteristics of a properly structured non-qualified plan include which of the following? 1. fully secured benefit promises 2. deferral taxation until benefits are received
1. false 2. true
22. Which of the following statements concerning reasons for obtaining an advance determination letter for a qualified plan is (are) correct? 1. the plan is not considered qualified unless it has received a determination letter from the IRS. 2. contributions under plan are not deductible unless a favorable determination letter has been received
1. false, presumed to be qualified 2. false
24. Which of the following statements comparing a non-qualified plan with a qualified plan is (are) correct? 1. a non qualified plan is more effective in retaining key employees than a qualified plan 2. a non qualified plan is more effective in helping an employer to fore stall the establishment of a union.
1. true 2. false, employers are typically not union members
19. Which of the following statements comparing qualified plans with non-qualified plans is (are) correct? 1. non qualified plans are generally considered to be more effective than qualified plans for recruiting, retaining, and retiring employees. 2. fewer formalities are required to establish a non qualified plan than are required to establish a qualified plan.
1. true 2. true
21. Which of the following statements concerning cross-tested and age-weighted defined-contribution plans is (are) correct?
1. true 2. true
18. Which of the following statements concerning 401 (k) plans is (are) correct? 1. 401K plans can allow salary deferral contributions, employer matching contributions, and profit sharing contributions. 2. employee salary contributions can be distributed 2 years after they have been made.
1. true 2. false, deferrals cannot be withdrawn until age 59.5
20. Which of the following statements concerning 401 (k) salary deferral plans is (are) correct? 1. the maximum deferral for a 50 yr old is 25,000. 2. the maximum deferral for a 45 yr old is 19,000
1. true 2. true
17. Which of the following statements concerning information sources for the pension practitioner is (are) correct? 1. loose- leaf and online services provide up to date information about laws, plans, and related areas. 2. Primary sources of information include books and periodic articles about pension plans
1. true, these are secondary sources 2. false
3. Which of the following statements concerning employee contributions to a 401 (k) plan is correct?
IS THERE A RESTRICTION ON HOW HIGHLY COMPENSATED EMPLOYEES DEFFER INTO A 401K PLAN? -HIGHLY COMPENSATED EMPLOYEES ARE RESTRICTED IN THE AMOUNT THEY CONTRIBUTE INTO THE PLAN BY THE AMOUNTS NON HIGHLY COMPENSATED EMPLOYEES CONTRIBUTE. --- IN A 401K PLAN EMPLOYEE DEFERRALS MUST SATISFY A NON DISCRIMINATION TEST ADP (AVERAGE DEFERRAL PERCENTAGE)
4. The maximum monthly benefit that the PBGC will pay to a plan participant if the plan cannot meet its benefit promise is approximately
Only Defined Benefit plans are insured by the Pension Benefit Guarantee Corporation. --- Defined Benefit plans will guarantee retirement benefits for participants up to $5,607.95 per month.
10. Which of the following statements correctly describes a simplified employee pension (SEP) plan?
Contributions are non-forfeitable; accounts are 100% vested.
5. Assume that the employer elects to limit the definition of highly compensated employees as allowed by law (alternate method), how many of BGC's employees are considered members of the highly compensated group for 2019?
alternate method to find highly compensated employee group: is the top 20% of the participants and must add in anyone employee who owns 5% or more of company stock
7. As far as profit-sharing plans are concerned, the IRS will recognize an involuntary termination under which of the following circumstances?
contributions are not required per year and the company has the deciding right to how much contributions to pay --- if contributions are not substantial and recurring
1. Which of the following statements concerning the SIMPLE plan is correct?
employer cannot place any restriction on withdrawals from the SIMPLE PLAN - once money goes into IRA the employer has nothing to do with it
2. Which of the following statements concerning contributions to a SIMPLE is correct?
not a qualified plan but -used for smaller business, who cannot not afford a qualified plan, where they can make retirement contributions for their employees on a before tax basis - BOTH EMPLOYER AND EMPLOYEE CAN CONTRIBUTE TO THE PLAN, AND THE EMPLOYER HAS TWO OPTIONS 1. EMPLOYER CAN AGREE TO MATCH DOLLAR FOR DOLLAR EMPLOYEE CONTRIBUTIONS INTO THE PLAN UP TO 6% OF COMPENSATION 2. EMPLOYER CAN AGREE TO CONTRIBUTE 2% OF COMPENSATION FOR EVERYONE IN THE PLAN REGARDLESS IF THEY CONTRIBUTED
12. Objectives that prompt business owners to establish retirement plans include which of the following?
- tax deduction, true ???? - to help employees with retirement fund, true ????
8. Which of the following documents must be provided automatically to all participants in a qualified plan?
--- SPD (summary plan description) must be given to all employees withing 120 days of plan being implemented
9. Which of the following statements concerning money-purchase pension plans is correct?
-contributions are made every year - documents must contain specified contribution formula
30. The Employee Retirement Income Security Act (ERISA) established all of the following, EXCEPT 1. minimum funding requirements 2. top heavy requirements 3. reporting and disclosure 4. PBGC
2. top heavy requirements (this was post ERISA)
27. All of the following statements concerning post-ERISA pension law changes that have an effect on pension plans are correct EXCEPT 1. the last several law changes have simplified the the pension rules 2. several changes over the years have increase the funding requirements for defined benefit plans to make sure that they are not under funding 3. the most recent tax laws have drastically reduced the maximum amount that can be contributed
3. the most recent tax laws have drastically reduced the maximum amount that can be contributed (recent legislation has increased the max amount)
26. All of the following statements concerning defined-benefit formulas are correct EXCEPT 1. a flat percentage of earning formula should generally needs to be reduced for employees less than 25 years of service in order to make the plan non discriminatory 2. a flat amount per year of service is popular in union plans 3. unit benefit formula with service caps can be used to gracefully turn over the work force 4. flat amount formula can be used to legally discriminate in favor of highly compensated employees
4. flat amount formula can be used to legally discriminate in favor of highly compensated employees
28. All of the following are defined-contribution plans, EXCEPT 1. profit sharing plan allowing discretionary employer contributions 2. pension plan with a funding based on a target benefit of 50% of compensation 3. pension plan providing annual employer contribution of 10% of salary 4. pension plan providing $500/month at retirement
4. pension plan providing $500/month at retirement
31. All of the following statements concerning tax aspects of qualified retirement plans are correct EXCEPT 1. the employer can deduct contributions to the plan even though participating employees are not immediately taxed 2. a participant receiving his or her benefit as single sum may elect special treatment 3. pure insurance portion of life insurance benefit is typically excluded in income tax 4. planned assets should be invested in tax free bonds
4. planned assets should be invested in tax free bonds
25. All of the following statements comparing a target-benefit plan to a defined-benefit plan are correct, EXCEPT 1. a target benefit plan uses excess interest that occurs during an inflationary period to increase benefits while under a defined benefit plan, excess interest is used to reduce employer contributions. 2. a target benefit plan is communicated more easily to employees than a defined benefit plan bc the target benefit plan uses separate allocated accounts 3. target benefit plan fixes employer cost on a reasonable level despite poor investment performance while under a defined benefit plan, poor investment performance requires increased employer contributions. 4. target benefit plan allows older highly compensated owner employees to save more than they could under a defined benefit plan
4. target benefit plan allows older highly compensated owner employees to save more than they could under a defined benefit plan
29. All of the following statements concerning a qualified plan's Summary Plan Description (SPD) are correct EXCEPT 1. easy to read booklet that explains plan 2. prepared by ... 3. must be issued to participants within 120 after plan has been adopted 4. used to persuade people to join plan
4. used to persuade people to join plan
11. Which of the following factors is likely to be most important in choosing a qualified plan for a small employer?
TAX SHELTER, A WAY TO ACCUMULATE MONEY FOR THE OWNERS AND THE HIGHLY COMPENSATED
6. Which of the following statements describes a disadvantage (to the employees) of a target-benefit plan, as opposed to a defined-benefit plan?
TB - not guarantee benefits, 56,00 max contribution/year and that might not be enough to pay target benefits DB - benefits guaranteed