PFPL 540 Module 1: Qualified Plan Requirements and Regulatory Plan Considerations

James Somerset earns $157,000 in 2022 working for Jamaica Imports of New York, NY. The firm has a 10% money purchase plan that is integrated with Social Security. The taxable wage base for 2022 is $147,000. What would the maximum contribution to the money purchase plan for James in 2022? A. $15,700 B. $16,270 C. $18,361 D. $24,649

B. $16,270 The base contribution percentage is made up to the Social Security taxable wage base of $147,000 in 2022. Thus, James gets 10% of the first $147,000 for 2022 ($14,700). Next you must calculate the permitted disparity. The permitted disparity is the lesser of: the base contribution percentage (10% in this case) or 5.7%. Thus, the permitted disparity is 5.7%. That makes the excess contribution percentage 15.7% (10% + 5.7%). 15.7% of the remaining $10,000 is $1,570. Thus the total contribution for 2022 is $16,270

In which of these situations can the Pension Benefit Guaranty Corporation (PBGC) terminate a defined benefit pension plan? I. The PBGC does not have the authority to terminate an employer's defined benefit pension plan. II. Anne's Aquatics, Inc., has not met the minimum funding standards for the corporation's defined benefit pension plan. III. Stacy has retired from her position and her former employer's defined benefit pension plan cannot pay her retirement benefit because it lacks the funds. IV. A professional service corporation with 20 active participants cannot meet the minimum funding standards of the defined benefit pension plan and has previously paid no PBGC premiums. A. II and III B. I and IV C. I and III D. II, III, and IV

A. II and III The PBGC can terminate a defined benefit plan if: a) minimum funding standards are not met; b) benefits cannot be paid when due; and c) the long-run liability of the company to the PBGC is expected to increase unreasonably. A professional service corporation with 25 or less participants is not required to maintain PBGC coverage.

Which of these is CORRECT when describing 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 promote the use of separate entities. C. They are intended to afford an employer or qualified plan sponsor flexibility in plan design. D. They are intended to prevent discrimination against highly compensated employees through the use of separate entities.

A. They are intended to prevent discrimination against nonhighly compensated employees through the use of separate entities. The purpose of the controlled group rules is to prevent discrimination against nonhighly compensated employees through the use of separate entities.

Karen has given her CFP® professional, David, information about the qualified retirement plan she wants to implement in her closelyheld C corporation. She has given him a census of her employees which includes dates of hire, compensation, and positions within the company. Karen advised David the general staff stays an average of 4 years, but her small executive team is made up of family members and does not turn over. Karen 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. David should A. analyze and evaluate the information Karen has given to him before making a recommendation. B. tell Karen a qualified plan that can have a 5-year cliff vesting schedule is best for her company. C. consider alternatives to the qualified plan Karen has selected and give her vesting schedule suggestions based on those plans as an alternative. D. recommend a vesting schedule and wait for feedback from Karen on his recommendation.

A. analyze and evaluate the information Karen has given to him before making a recommendation. The most appropriate action for David to take now is to analyze and evaluate the information Karen has given to him. Once this is done, he will be able to make appropriate recommendations.

DEF Corp. has an employee covered compensation totaling $100,000. The employees defer $10,000. What is the total amount that DEF may take as an employer deduction for contributions made to its qualified plan? A. $10,000 B. $25,000 C. $27,500 D. $100,000

B. $25,000 The 25% employer deduction limit is based on gross covered compensation of $100,000. DEF's deduction is $25,000. The employee elective deferrals do not count toward the $25,000 limit; therefore DEF may contribute and deduct as much as $25,000.

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

B. $25,000 The 25% employer deduction limit is based on the gross includible compensation of $100,000. The employee elective deferrals do not count toward the $25,000 limit; therefore, Treetop may contribute and deduct as much as $25,000.

Beta 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 employee compensation. Daniel, age 40, is an employee of Beta Corporation and is paid $100,000 for 2022. Assuming he defers the maximum employee contribution amount of $20,500 in 2022 and that Beta allocates no forfeitures to his account for that year, how much can the company contribute as a profit-sharing contribution to Daniel's account (exclusive of the mandatory employer-match)? A. $3,000 B. $20,500 C. $37,500 D. $40,500

C. $37,500 In 2022, the maximum employee contribution amount here is the lesser of 100% of Daniel's compensation ($100,000) or $61,000. Therefore, subtract the total of Daniel's elective deferrals ($20,500) and the alreadycontributed company match ($3,000) from the $61,000 limit. This leaves an additional profit-sharing contribution of $37,500 ($61,000 - $23,500) that may be made to Daniel's account by Beta Corporation.

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. DOL The Department of Labor (DOL) regulates the actions of plan fiduciaries. It also ensures compliance with the ERISA plan reporting and disclosure requirements.

Which of these employees are HCEs of Underwood Corporation for the year 2022? Assume the top 20% election was made by Underwood Corporation. I. Benson, who owns 10% of Underwood and is an employee II. Meredith, the president of Underwood, whose compensation was $160,000 last year and is in the top 20% of all paid employees III. Janet, an employee salesperson, who earned $200,000 last year and was the top paid employee at Underwood this year IV. Jeremy, who earned $115,000 last year as Underwood's legal counsel and is not in the top 20% of all paid employees A. I and II B. II and III C. I, II, and III D. II, III, and IV

C. I, II, and III Jeremy is not an HCE because he did not earn more than $135,000 in the previous year, is not in the top 20% of all paid employees, and does not have any ownership of the corporation. Even if Jeremy was in the top 20% of paid employees, he would not be considered highly compensated because he does not make enough money

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? I. 18 years of age II. 21 years of age III. Completion of 1 year of service; at least 1,000 hours per year IV. Completion of 3 years of service; averaged 600 hours per year A. I and III B. I and IV C. II and III D. II and IV

C. II and III The participation requirements for a plan using normal eligibility requirements (non-2-year eligibility standards) are attainment of age 21 by the employee and completion of one year of service of at least 1,000 hours (the 21-and-1 rule).

Which of these federal agencies is tasked with supervising the creation of new qualified retirement plans? A. DOL B. ERISA C. IRS D. PBGC

C. IRS The Internal Revenue Service (IRS) supervises the creation of new, qualified retirement plans.

Ben, age 42, owns a small business owner. He wants to establish a DC plan. He currently earns $115,000 annually. He employs two people whose combined salaries are $58,000 annually and who are 24-30 years old. The average employment period is 3½ years. Which vesting schedule is best suited for Ben's qualified plan? A. 3-year cliff vesting B. 3-to-7-year graded vesting C. 5-year cliff vesting D. 2-to-6-year graded vesting

D. 2-to-6-year graded vesting Ben must adopt either 3-year cliff vesting or 2-to-6-year graded vesting for all employer contributions to a defined contribution plan. Given the average length of employment, the most suitable vesting schedule from Ben's perspective is 2-to-6-year graded vesting.

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

D. II and III The participation requirements for a plan using normal eligibility requirements (non-2-year eligibility standards) are attained at the age of 21 by the employee and at the completion of 1 year of service of at least 1,000 hours annually (the 21-and-1 rule)

What is the latest an employer can establish and/or fund a retirement plan? A. January 1st of the year the plan starts. B. Oct 15th of the year the plan starts C. The due date of the tax return for the year not including extensions. D. The due date of the tax return for the year including extensions.

D. The due date of the tax return for the year including extensions. The latest an employer can establish and/or fund a retirement plan is the due date of the tax return for the year including extensions. This is an attempt to encourage more new employer retirement plans. This deadline really only applies to employer contributions. A worker must agree to place future earnings into a retirement plan before the money is earned. Thus, a worker cannot defer any compensation into a plan for the first year if that plan is not established until after that year if over

What is the strictest eligibility requirement a retirement plan with a vesting schedule? a. age 21 and one year of service defined as at least 1,000 hours of work b. age 18 and one year of service defined as 1,000 hours of work c. age 21 and two years of service defined as 1,000 hours of work d. age 18 and one year of service defined as 2,000 hours of work

a. age 21 and one year of service defined as at least 1,000 hours of work The most strict eligibility requirement a retirement plan with a vesting schedule is age 21 and one year of service defined as at least 1,000 hours of work. An alternative minimum eligibility schedule is age 21 and two years of service for plans with 100% immediate vesting. Also, a 401(k) is not allowed to use the age 21 and two years of service.

ERISA requires reporting and disclosure of plan information to all of the following except a. plan sponsors b. the Internal Revenue Service (IRS) c. the Department of Labor (DOL). d. plan participants.

a. plan sponsors ERISA requires reporting and disclosure of plan information by plan sponsors to the IRS, DOL, Pension Benefit Guaranty Corporation (PBGC), and plan participants not plan sponsors.

Don, age 40, plans to retire at 67. His retirement goal is $80,000/year in today's dollars at the beginning of each year for 30 years. He assumes Social Security will pay an inflation-adjusted $30,000 year. He assumes inflation will average 3%/year for his lifetime. He believes his investments will average 7% before retirement and 6% in retirement. How much will his first withdrawal from his retirement account be when he retires? Round your answer to the nearest ten dollars. a. $66,640 b. $111,060 c. $177,700 d. $310,690

b. $111,060 PV = -$50,000 I/YR = 3% N = 27 x 1 FV ____ Answer: $111,064.4503

Rachel is 48 years old. She makes $400,000 working for the ABC Company. The company has a 4% match. What is the maximum contribution to Rachel's 401(k) from the match and her elective deferrals for 2022? a. $20,500 b. $32,700 c. $35,500 d. $61,000

b. $32,700 Rachel can defer $20,500 maximum in her 401(k). The 4% match stops at $305,000 in 2022. Thus, the maximum contribution from Rachel and the match is $32,700 ($20,500 + (.04 X $305,000) = $32,700.

Which of the following is an example of a qualified retirement plan? a. 403(b) plan b. 401(k) plan c. SEP plan d. Deferred compensation plan

b. 401(k) plan A Section 401(k) plan is a qualified plan. 403(b) plans and SEP plans are tax-advantaged plans, but are not ERISA-qualified retirement plans. A deferred compensation plan is a nonqualified plan. While tax-advantaged plans are very similar to qualified plans, there are some minor differences.

Which of the following is the easiest type of retirement plan for an employer to adopt? a. individually designed plan b. prototype plan c. Pension Benefit Guaranty Corporation (PBGC) plan d. custom plan

b. prototype plan Master plans and prototype plans are easier to use than individually designed plans or custom plans because they are standardized plans approved as qualified in concept by the IRS. The PBGC is the governmental body that insures pension benefits; it is not a type of plan.

What is the initial penalty imposed for a violation of the prohibited transaction rules? a. 6% b. 10% c. 15% d. 50%

c. 15% The initial penalty for a prohibited transaction is 15%. If the problem is not rectified, a penalty of 100% can be imposed. If the retirement plan does not have the funds to pay the penalty, the party in interest (fiduciary) can be held personally liable for any unpaid penalty amount.

If 85% of the highly compensated employees are in the retirement plan, what is the minimum percentage of non-highly compensated employees that must be in the plan to pass the ratio test? a. 50.0% b. 55.5% c. 59.5% d. 70.0%

c. 59.5% If 85% of the highly compensated employees are in the retirement plan, 59.5% of the non-highly compensated employees must be in the plan. 59.5%/85% = 70% Alternatively, 85% x .7 = 59.5%

Mo's Trucking is owned by Mo and his brothers Larry and Curly. They are installing a 401(k) at their company and they want to pick a vesting schedule that will minimize the cost of the plan. The average employee works at Mo's for three years. The longest employee other than the brothers has lasted four years. Which vesting schedule should the owners choose? a. three-year cliff b. five-year cliff c. two- to six-year graded vesting d. three- to seven-year graded vesting

c. two- to six-year graded vesting Since a 401(k) is a defined contribution plan, the five-year cliff and two- to seven-year graded vesting schedules are not legal. If they select the graded vesting schedule, no employee to date would have been able to walk with all the employer contributions and the earnings on the employer contributions. When a worker leaves the employer, any money that is not vested is returned to the plan. A defined contribution plan can either use this money to fund the employer contributions or the money can be reallocated to the remaining employees. When asked about vesting schedules, you are always on the employer's side unless specifically told otherwise.

What is the maximum grading vesting schedule for a 401(k)? a. three-year cliff b. five-year cliff c. two- to six-year graded vesting d. three- to seven-year graded vesting

c. two- to six-year graded vesting Two- to six-year graded vesting is the longest allowed graded vesting for any defined contribution plan. Three-year cliff is longest allowed cliff vesting for a defined contribution plan. These rules also apply to a top-heavy defined benefit plan. A non-top-heavy defined benefit plan can have up to a five-year cliff vesting schedule or a three- to seven-year graded vesting schedule.

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

A. II and III Employer contributions must be 100% vested immediately in the case of terminated plans and employees required to meet the two years of service eligibility requirement. Employee contributions are always 100% vested.

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

B. I and III Employer contributions must be 100% vested immediately in the case of terminated plans and employees required to meet the 2 years of service eligibility requirement. Employee contributions are always 100% vested.

Which of the following employees are HCEs of XYZ Corporation for 2021? Assume the top 20% election was made by XYZ Corporation. I. Bill, who owns 10% of XYZ and is an employee II. Mary, the president of XYZ, whose compensation was $145,000 last year and is in the top 20% of all paid employees III. Ralph, an employee salesman who earned $135,000 last year and was the top paid employee at XYZ this year IV. Joe, who earned $115,000 last year as XYZ legal counsel and is not in the top 20% of all paid employees A. I and II B. I, II, and III C. II and III D. II, III, and IV

B. I, II, and III Joe is not an HCE because he did not earn greater than $130,000 in the previous year, is not in the top 20% of all paid employees, and is not a >5% owner.

Given the following information regarding the employees of ABC Corporation, which of the following employees is included in the highly compensated group? Assume the company makes the "top 20%" election. Employee, Compensation, Ownership Percentage Laura, $250,000, 45% Michael, $135,000, 15% Joshua, $132,000, 13% Sara, $131,000, 5% Daren, $131,000, 4% Lisa, $85,000, 6% Hans, $30,000, 3% Daniel, $25,000, 1% Melissa, $25,000, 2% Allison, $25,000, 6% A. Laura, Michael, and Joshua B. Laura and Michael C. Laura, Michael, Joshua, Lisa, and Allison D. Laura, Michael, Joshua, and Sara

C. Laura, Michael, Joshua, Lisa, and Allison The "top 20%" election does not remove an EE from the HCE group if the EE is a greater than 5% owner, even if the EE's comp does not rank in the top 20%. Thus, only Sara and Daren are removed from the HCE group. Joshua, Lisa, and Allison must be included in the HCE group because each is a greater than 5% owner.

Sunset 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 contribution percentage allowed under the permitted disparity rules? A. 5.7% B. 12.3% C. 25.0% D. 18.0%

D. 18.0% The excess contribution percentage cannot exceed the lesser of two times the base percentage (24.6%) or the base percentage plus 5.7%. Therefore, the maximum excess contribution percentage is 18.0% or (12.3% + 5.7%)

The XYZ Company has an integrated money purchase plan. The integration level is the taxable wage base of $147,000, for 2022. The base contribution percentage is 5%. What is the highest percentage the XYZ Company can contribute to the retirement account of a worker for compensation above the integration level? a. 4.0% b. 5.7% c. 10.0% d. 10.7%

c. 10.0% The highest contribution for compensation above the integration level is the base contribution percentage plus the lower of: The base contribution (again) or5.7%. In this case, the base contribution percentage is 5%, thus the contribution for earnings above the integration level is the lower of: 5% + 5% = 10% or 5% + 5.7% = 10.7% Thus, 10% is the answer.

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

d. One of two accelerated vesting schedules must be used. If a defined benefit pension plan is top heavy, one of two accelerated vesting schedules must be used: either 100% vesting after three years of service or graded two- to six-year vesting. The same eligibility and nondiscrimination tests apply as for qualified plans that are not top heavy.

ERISA requirements for qualified plans include a. coverage and vesting. b. reporting and disclosure. c. participation and fiduciary requirements. d. all of these.

d. all of these. All of these are ERISA requirements for qualified plans.

Don earns $150,000 at DEF Corp. The base contribution percentage of DEF Corp.'s DC plan is 7% and the integration level is $142,800. 1. What is the permitted disparity? 2. What is the excess contribution percentage? 3. What contribution will be made for Don?

1. What is the permitted disparity? (Lesser of 7% or 5.7%) 5.7% 2. What is the excess contribution percentage? 7% + (lesser of 7% or 5.7%) 12.7% 3. What contribution will be made for Don in 2021? $10,910.40 (7% of 142,800 + 12.7% of the remaining $7,200 = $9,996 + $914.40 = $10,910.40)

Grant, age 42, wants to establish a qualified defined contribution plan for his small business. He currently earns $115,000 annually. Grant employs four people whose combined salaries are $58,000 annually and ages range from 24 to 30. The average employment period is 3½ years. Which vesting schedule is best suited for Grant's qualified plan? A. Two-to-six-year graded vesting B. Five-year cliff vesting C. Three-year cliff vesting D. Three-to-seven-year graded vesting

A. Two-to-six-year graded vesting Because the plan is a defined contribution plan, Grant must adopt a vesting schedule that is at least as generous as the three-year cliff vesting, or two-to-six-year graded vesting for all employer contributions, to a defined contribution plan. Given the average length of employment, the most suitable vesting schedule from Grant's perspective is two-to-six-year graded vesting. This way, the employees have to work six years before they are fully vested.

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

B. The plan does not meet the average benefits percentage test, but it meets the ratio test. The ratio test is satisfied because the plan covers 86.8% of the non-HCEs in proportion to the HCEs that are covered. The calculation is as follows: ratio test: 125 ˜ 180 non-HCEs / 16 ˜ 20 HCEs = 0.6944 / 0.80 = 0.8681 (or 86.8%). The average benefits percentage test is not met because that percentage is only 37.5% (3% divided by 8%).

ABC Corp. has a profit-sharing plan with Section 401(k) provisions. The employer matches up to 3%. Josh, age 40, is paid $100,000 in 2021. Assuming he defers the maximum before-tax elective deferral of $19,500 in 2021 and ABC allocates no forfeitures to his account for that year, what amount can the company contribute as a profit-sharing contribution to Josh's account (exclusive of the mandatory employermatch)? A. $6,500 B. $19,500 C. $35,500 D. $37,500

C. $35,500 $58,000 (annual additions limit) − 19,500 (elective deferrals) − 3,000 (company match) = $35,500

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%. With respect to the coverage tests applied to the ABC plan, which of the following statements is CORRECT? 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 benefit 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. The plan does not meet the average benefits percentage test, but it meets the ratio test. The ratio test is satisfied because the plan covers 86.8% of the non-HCEs in proportion to the HCEs that are covered. Ratio test: (125/180 non-HCEs) ÷ (16/20 HCEs ) = .6944 ÷ .80 = .8681 (86.8%). The average benefits test is not met, because that percentage is only 37.5 (3% divided by 8%).

Nigel's employer, Alpha, Inc., maintains a qualified defined benefit pension plan. There are 100 eligible employees working for Alpha, Inc. What is the minimum number of employees the retirement plan must cover to satisfy the 50/40 test? a. 40 b. 50 c. 80 d. 100

a. 40 Under the 50/40 test, a defined benefit plan must cover the lesser of 50 employees or 40% of all eligible employees. In this case, the lesser of 50 employees or 40% of all eligible employees (100) is 40 employees. One way to remember the 50/40 test is the phrase people before percentages (50 people or 40%). Also, note that there are no qualifiers to the types of people. It is not 50 non-highly compensated people. It is just 50 individuals who work for the employer.

What is the permitted disparity for a defined contribution plan with a current base contribution percentage of 6%? a. 5.7% b. 6,0% c. 11.7% d. 12,0%

a. 5.7% The permitted disparity is the extra amount reached above the integration level. For an integrated defined contribution plan, the permitted disparity is the lesser of 5.7% and the base contribution percentage. Since the base benefit percentage is 6%, the permitted disparity is limited to 5.7%. That would mean the excess benefit percentage is 11.7% (6% + 5.7%).

Qualified retirement plans are which of these? I. They are subject to ERISA requirements. II. They offer tax-deferred earnings to employees. III. They can discriminate in favor of highly compensated employees. IV. They provide a deferred tax deduction for employer funding. a. I and II only b. III and IV only c. I, II, and III only d. I, II, III, and IV

a. I and II only Statements I and II are correct. Qualified retirement plans are subject to ERISA requirements and provide tax deferral on investment earnings for employees. While qualified plans in general can provide different levels of benefits to different classes of employees, qualified plans cannot "discriminate in favor of highly compensated employees" in the sense that there is a legal limit to the amount of the difference. As long as the difference is inside the legal limits, the plan is not discriminatory (by definition). Qualified retirement plans provide an immediate tax deduction on employer contributions—not a deferred tax deduction, like a nonqualified deferred compensation plan.

What government agency is responsible for supervising the creation of new employer retirement plans and what government agency is responsible for issuing prohibited transaction exemptions? a. IRS, DOL b. DOL, IRS c. IRS, PBGC d. IRS, IRS

a. IRS, DOL The IRS is responsible for overseeing the creation of new employer retirement plans. The DOL is responsible for issuing prohibited transaction exemptions.

Qualified retirement plans should do which of the following? I. They must meet specific vesting requirements. II. They have special tax advantages over nonqualified plans. III. They must provide definitely determinable benefits. IV. They require an annual profit to allow funding for the plan. a. I and IV only b. II and III only c. I, II, and III only d. II, III, and IV only

c. I, II, and III only Qualified plans must meet specific vesting schedules. Qualified plans are preferred to nonqualified plans because of the special tax advantages enjoyed by qualified plans. Qualified retirement plans must offer definitely determinable benefits. An annual profit is not required for a qualified plan to be funded.

Which of the following are all qualified plans? a. cash balance plan, thrift plan, SEP b. money purchase plan, stock bonus plan, SIMPLE IRA c. target benefit plan, SIMPLE 401(k), new comparability plan d. defined benefit plan, 403(b), ESOP.

c. target benefit plan, SIMPLE 401(k), new comparability plan Target benefit plans, SIMPLE 401(k), and new comparability plans are all qualified plans. SEPs, SIMPLE IRAs and 403(b) plans are not qualified plans. They are tax advantaged plan.

Prohibited transactions are those that are not in the best interest of plan participants and include which of these? I. A loan between the plan and any party in interest II. The acquisition of employer securities or real property in excess of legal limits III. A transfer of plan assets to or use of plan assets for the benefit of a party in interest IV. The sale, exchange, or lease of any property between the plan and a party in interest a. I and II only b. III and IV only c. I, II, III only d. I, II, III, and IV

d. I, II, III, and IV All of the statements are prohibited transactions. Self-dealing is also a prohibited transaction.