Topic 46 Types of Retirement Plans

Which of the following is (are) among the basic provisions that target benefit plans share with defined-contribution plans?

(1) The maximum annual addition is limited to the lesser of $53,000 or 100% of compensation in 2015. (2) Account balances include employer contributions and investment earnings or losses.

A CFP® professional is recommending a retirement plan for a client and compares it to a target benefit plan. Which of the following features are associated with a target benefit plan?

(1) Individual accounts (2) Reduced actuarial and administrative expenses

Which of the following statements concerning the typical employee stock ownership plan (ESOP) plan is (are) correct?

(1) It is useful to the corporation in cash flow planning because the employer can make a "cashless" contribution to the plan.

Contributions to a 401(k) plan receive which of the following favorable tax treatments?

(1) Reduced taxable income resulting from the fact that employee contributions can come from pre-tax income. (2) Investment earnings accumulate on a tax-deferred basis. (3) Certain tax benefits may be available when the funds are distributed from the employee's account.

Which of the following qualified retirement plans are permitted to have a CODA (cash or deferred arrangement) provision?

(1) Stock bonus plans (3) Profit-sharing plans

Which of the following statements concerning cash-balance pension plans is (are) correct?

(1) Such plans are costly to administer because of the actuarial computations that must be made and respected.

Which of the following statements concerning the federal income tax treatment of a lump-sum retirement distribution to an employee covered under a qualified retirement plan is (are) correct?

(1) The amount attributable to the employer's contributions is taxable as ordinary income.

Which of the following statements concerning cash-balance pension plans are correct?

(1) The employer may guarantee an annual investment return of 6% when the prime rate is 8%. (2) An existing defined-benefit plan may be modified into a cash-balance plan. (3) A cash-balance plan can be more favorable for a young employee than a conventional defined-benefit plan. (4) A cash-balance plan has greater security for the participating employees than a conventional defined-contribution plan.

The most fundamental reason for pension plans is to:

C. Facilitate the accumulation of retirement savings for employees

Which of the following statements concerning the advantages of a flat benefit formula under a defined-benefit pension plan is correct?

C. Integration is permitted.

Which of the following statements concerning SIMPLE 401(k) plans is (are) correct?

(1) In-service withdrawals are permitted under conditions of hardship. (2) Borrowing is permitted. (3) The usual anti-creditor provisions apply, as for other qualified plans.

Which of the following are defined-benefit formulas?

(1) A flat amount formula (2) A flat percentage of earnings formula (4) A percentage of earnings per year of service formula

Which of the following statements concerning distributions from ESOPs or stock bonus plans is (are) correct?

(1) A participant must be able to receive a distribution in the form of employer stock. (3) The appreciation in the stock is not taxed until the participant sells the stock.

Which of the following statements concerning the 401(k) provisions of an employer's profit-sharing plan is (are) correct?

(1) An election must be made by the employee to reduce his or her taxable income or to defer the receipt of cash. (3) The total deductible contributions by an employer under a profit-sharing plan can equal, but cannot exceed, 25% of the payroll for participant's.

Which of the following statements about Roth contributions to a qualified plan is (are) correct?

(1) An employee can designate his or her salary deferrals as Roth contributions.

Which of the following statements concerning the basic provisions target benefit plans share with defined-benefit plans is (are) correct?

(1) Contributions are determined through actuarial computations.

Which of the following statements concerning employer contributions under a qualified profit-sharing plan is (are) correct?

(1) Contributions may vary from year to year, as the employer's profits vary. (3) Profit-sharing plans generally favor younger employees more than do defined-benefit pension plans.

Which of the following statements concerning thrift and savings plans is (are) correct?

(1) Employees may select from two or more investment options. (2) Employees are penalized for making withdrawals prior to retirement, disability, death, or termination of employment.

If the maximum annual retirement benefit permitted at age 65 in 2015 under a defined-benefit pension plan is $210,000, which of the following statements is (are) correct?

(1) For a person retiring at age 63, the maximum benefit would be actuarially reduced below $210,000. (2) For a person retiring at age 68, the maximum benefit would be actuarially increased above $210,000.

Younger participants in qualified retirement plans of the defined-contribution type are particularly favored (as compared to older participants) for which of the following reasons?

(1) The longer period to benefit from receipt of the employer's annual contributions and from investment income (2) The longer period to benefit from compounding of investment income

Under a qualified defined-contribution plan, the amount of a participant's monthly retirement benefit depends on which of the following?

(1) The rate of return earned on invested assets (2) The amount of forfeitures allocated to the employee's account (3) The employee's retirement age

Which of the following statements concerning thrift and savings plans is (are) correct?

(1) Unless full and immediate vesting is provided, eligibility requirements established by the employer cannot exceed age 21 and one year of service. (2) Employee contributions are always 100% vested.

Which of the following statements concerning the provisions of a salary reduction 401(k) plan is (are) correct?

(1) When an employee elects to contribute to a salary reduction 401(k) plan, he or she reduces his or her salary by some given percentage, and this is generally done on a salary reduction basis. (2) The plan may give an employee the option of either picking a salary deferral percentage from a specified range, for example, between 2% and 6% of pay, or making salary deferral contributions as a flat percentage of pay. (3) Some employers have difficulty complying with the 401(k) plan's nondiscriminatory provisions.

Which of the following types of retirement plans normally entail(s) the business owner giving up some of his or her voting control in the company?

(2) A stock bonus plan

Ignoring the impact of vesting, which of the following will reduce the ultimate cost of a defined-benefit pension plan?

(2) An increase in labor mobility

Which of the following statements concerning age-weighted profit-sharing plans is (are) correct?

(2) Contributions are allocated based upon the ratio of each participant's present value of a benefit of 1% of pay to the total present values of all participants. (3) Age-weighted profit-sharing plans favor older employees.

Which of the following statements concerning the popularity of retirement plans are correct?

(2) Defined-benefit plans have lost favor among very small employers. (3) 401(k) plans are growing in popularity.

Which of the following statements concerning the basic provisions of LESOPs is (are) correct?

(2) LESOPs are not permitted to integrate with Social Security.

Which of the following factors will likely increase an employer's annual costs for a defined-benefit plan?

(2) Low projected rates of investment income (3) High ratio of married to unmarried participants

Which of the following statements concerning the basic provisions that are unique to ESOPs is (are) correct?

(2) The plan must provide for diversification of investments by permitting participants who have completed 10 years of participation and attained age 55 to direct the investment of a portion of their account balance.

Which of the following statements concerning target benefit plans is (are) correct?

(2) There is a lack of flexibility since the amount of the employer's annual contribution is fixed. (3) Excess investment earnings or losses are added to or subtracted from account balances.

Which of the following statements concerning employer contributions to a profit-sharing plan is correct?

A. Contributions in excess of 25% of participating payroll can be deducted in succeeding tax years.

All the following are among the requirements for a pension plan to be qualified:

A. Discrimination in favor of the highly-compensated executives is prohibited. B. Benefits must be definitely determinable. D. The provisions of the plan must be set forth in a written agreement.

All the following statements correctly indicate characteristics of qualified retirement plans:

A. The employer is usually permitted to deduct the annual contribution from gross income. B. The employee is in receipt of no taxable income until the payout years. C. Both defined-benefit plans and defined-contribution plans may become qualified.

Which of the following statements concerning money-purchase pension plans is correct?

A. The employer's contribution can be allocated to the participants' accounts, giving consideration to the employees' compensation and length of service with the employer.

Which of the following statements concerning thrift and savings plans is correct?

B. Employer matching contributions are usually a fixed percentage of employee contributions.

Which of the following statements concerning the 401(k) provisions is correct?

B. If there is a major unforeseen financial emergency faced by the employee, he or she may withdraw all or part of his or her 401 (k) contributions.

Which of the following statements concerning a basic unit-benefit formula in a defined-benefit pension plan is correct?

B. The formula results in a retirement benefit that varies directly with the employee's number of years of service with the employer.

In a target benefit plan, interest earned in excess of that projected:

C. Can increase the actual retirement benefit of participants over targeted amounts

Which of the following statements concerning the tax treatment of a qualified retirement plan is correct?

C. Subject to certain requirements, a lump-sum distribution prior to age 591⁄2 will be taxed on an unfavorable basis for the employee.

Which of the following statements concerning defined-contribution and defined-benefit qualified retirement plans is correct?

C. The employer bears the investment risk only for a defined-benefit type plan.

Which of the following is a valid motive for an employer to establish an age-weighted profit-sharing plan?

C. The employer wants to make sure that a higher percentage of contributions is allocated to the firm's older employees.

Which of the following statements is correct concerning a profit-sharing plan specially amended to permit the trust to invest in over the normal limit of the employer's securities?

C. The plan may be integrated with Social Security.

Which of the following statements concerning the characteristics of ESOPs and stock bonus plans is correct?

C. These plans may be adopted by S corporations but not partnerships.

Which of the following statements concerning cash-balance pension plans is correct?

D. The employer's annual contribution may be either a flat amount or a fixed percentage of the employee's compensation.

Which of the following statements concerning money-purchase pension plans is correct?

D. The employer's contribution specified in a money-purchase plan is the minimum funding standard.

Which of the following statements concerning profit-sharing plans is correct?

D. They provide greater overall motivation and incentives than does the typical defined-benefit pension plan.

Which of the following types of plans allow employees to treat their contributions as Roth contributions?

E. 401(k) plans