QKA - 1 RETIREMENT PLAN FUNDAMENTALS &
PLAN TYPES ACTUAL EXAMS STUDY
QUESTIONS WITH 100% CORRECT ANSWERS
1. What is a Defined Contribution Plan? - ANSWER A retirement plan that
maintains an individual account balance for each participant.
2. How is a participant's benefit determined in a Defined Contribution Plan? -
ANSWER A participant's benefit is based solely on the value of their
account balance.
3. What does a participant's account balance in a Defined Contribution Plan
represent? - ANSWER It represents their share of the value of the trust
assets.
4. Who bears the risk of investment losses in a Defined Contribution Plan? -
ANSWER The participant bears the risk of investment losses.
5. What factors are benefits in a pension plan generally measured by? -
ANSWER Benefits are generally measured by factors such as years of
service and compensation.
6. What types of plans are considered pension plans? - ANSWER A money
purchase plan and target benefit plan are considered pension plans since they
use a formula to determine contributions and allocations.
7. When can in-service withdrawals be allowed in a pension plan? - ANSWER
In-service withdrawals can only be allowed after the participant has reached
age 59 1/2 or the normal retirement age (NRA).
,8. Can pension plans provide for hardships? - ANSWER No, pension plans
cannot provide for hardships.
9. What is a characteristic of nonpension plans? - ANSWER Nonpension plans
do not have to satisfy the definitely determinable benefits requirement.
10.What discretion does an employer have in nonpension plans? - ANSWER
The employer may have discretion to determine the amount to be
contributed each year.
11.What are the two types of nonpension plans? - ANSWER 1. Profit-sharing
plans 2. Stock bonus plans.
12.Why are Section 401(k) plans considered nonpension plans? - ANSWER
They are classified as either profit-sharing plans or stock bonus plans.
13.What must a nonpension plan provide regarding contributions? - ANSWER
A definite allocation formula outlining how the employer's contribution is
allocated among the plan participants' accounts.
14.What is a profit-sharing plan? - ANSWER A defined contribution (DC)
plan in which an employer contribution is not mandatory but must be
recurring and substantial if made.
15.What is a stock bonus plan? - ANSWER A defined contribution (DC) plan
in which benefits are distributable in employer stock.
,16.What is the main difference between a profit-sharing plan and a stock bonus
plan? - ANSWER The certain IRC requirements that are applicable to each
type.
17.What is a Money Purchase Plan? - ANSWER A Money Purchase Plan is a
type of retirement plan that requires mandatory employer contributions.
18.Why are Money Purchase Plans less popular? - ANSWER They are less
popular because they have mandatory employer contributions and more
restrictive distribution rules.
19.Can Money Purchase Plans permit elective deferrals? - ANSWER No,
Money Purchase Plans cannot permit elective deferrals.
20.What is a Money Purchase Plan? - ANSWER A Money Purchase Plan (MP
plan) is a type of retirement plan that requires a definite contribution
requirement for determining a company's annual contribution.
21.What can participants do with their accounts in many Defined Contribution
Plans? - ANSWER Many plans permit participants to direct the investments
for their own accounts.
22.What is a Defined Benefit Plan? - ANSWER Any plan other than a DC
plan.
23.How is the accrued retirement benefit determined in a Defined Benefit Plan?
- ANSWER By a formula stated in the plan.
24.What must a Defined Benefit Plan provide to satisfy the requirement of
definitely determinable benefits? - ANSWER A defined benefit formula and
how benefits are accrued or earned under the formula.
, 25.Who is required to fund a Defined Benefit Plan sufficiently to provide
benefits? - ANSWER The employer that sponsors the plan.
26.Who bears the risk of investment losses in a Defined Benefit Plan? -
ANSWER The plan sponsor (employer).
27.What happens if a Defined Benefit Plan does not have enough funds? -
ANSWER The employer has to contribute to make up the difference.
28.Qualification rules for DC & DB plans - ANSWER Nondiscrimination
testing: IRC401(a)(4), including permitted disparity IRC 401(l)
Treatment of forfeitures: IRC401(a)(8)
Minimum distributions: IRC401(a)(9)
Provision and calculation of QJSA: IRC401(a)(11) and 417
Limitations under IRC 415
IRC401(a)(26) (minimum ppt test) applies only to DB plans
5 year break-in-service rule under vesting requirements: IRC411(a)(6)(c)
applies only to DC plans and fully insured DB plans
The manner of calculating top heavy minimum benefits: IRC416
PLAN TYPES ACTUAL EXAMS STUDY
QUESTIONS WITH 100% CORRECT ANSWERS
1. What is a Defined Contribution Plan? - ANSWER A retirement plan that
maintains an individual account balance for each participant.
2. How is a participant's benefit determined in a Defined Contribution Plan? -
ANSWER A participant's benefit is based solely on the value of their
account balance.
3. What does a participant's account balance in a Defined Contribution Plan
represent? - ANSWER It represents their share of the value of the trust
assets.
4. Who bears the risk of investment losses in a Defined Contribution Plan? -
ANSWER The participant bears the risk of investment losses.
5. What factors are benefits in a pension plan generally measured by? -
ANSWER Benefits are generally measured by factors such as years of
service and compensation.
6. What types of plans are considered pension plans? - ANSWER A money
purchase plan and target benefit plan are considered pension plans since they
use a formula to determine contributions and allocations.
7. When can in-service withdrawals be allowed in a pension plan? - ANSWER
In-service withdrawals can only be allowed after the participant has reached
age 59 1/2 or the normal retirement age (NRA).
,8. Can pension plans provide for hardships? - ANSWER No, pension plans
cannot provide for hardships.
9. What is a characteristic of nonpension plans? - ANSWER Nonpension plans
do not have to satisfy the definitely determinable benefits requirement.
10.What discretion does an employer have in nonpension plans? - ANSWER
The employer may have discretion to determine the amount to be
contributed each year.
11.What are the two types of nonpension plans? - ANSWER 1. Profit-sharing
plans 2. Stock bonus plans.
12.Why are Section 401(k) plans considered nonpension plans? - ANSWER
They are classified as either profit-sharing plans or stock bonus plans.
13.What must a nonpension plan provide regarding contributions? - ANSWER
A definite allocation formula outlining how the employer's contribution is
allocated among the plan participants' accounts.
14.What is a profit-sharing plan? - ANSWER A defined contribution (DC)
plan in which an employer contribution is not mandatory but must be
recurring and substantial if made.
15.What is a stock bonus plan? - ANSWER A defined contribution (DC) plan
in which benefits are distributable in employer stock.
,16.What is the main difference between a profit-sharing plan and a stock bonus
plan? - ANSWER The certain IRC requirements that are applicable to each
type.
17.What is a Money Purchase Plan? - ANSWER A Money Purchase Plan is a
type of retirement plan that requires mandatory employer contributions.
18.Why are Money Purchase Plans less popular? - ANSWER They are less
popular because they have mandatory employer contributions and more
restrictive distribution rules.
19.Can Money Purchase Plans permit elective deferrals? - ANSWER No,
Money Purchase Plans cannot permit elective deferrals.
20.What is a Money Purchase Plan? - ANSWER A Money Purchase Plan (MP
plan) is a type of retirement plan that requires a definite contribution
requirement for determining a company's annual contribution.
21.What can participants do with their accounts in many Defined Contribution
Plans? - ANSWER Many plans permit participants to direct the investments
for their own accounts.
22.What is a Defined Benefit Plan? - ANSWER Any plan other than a DC
plan.
23.How is the accrued retirement benefit determined in a Defined Benefit Plan?
- ANSWER By a formula stated in the plan.
24.What must a Defined Benefit Plan provide to satisfy the requirement of
definitely determinable benefits? - ANSWER A defined benefit formula and
how benefits are accrued or earned under the formula.
, 25.Who is required to fund a Defined Benefit Plan sufficiently to provide
benefits? - ANSWER The employer that sponsors the plan.
26.Who bears the risk of investment losses in a Defined Benefit Plan? -
ANSWER The plan sponsor (employer).
27.What happens if a Defined Benefit Plan does not have enough funds? -
ANSWER The employer has to contribute to make up the difference.
28.Qualification rules for DC & DB plans - ANSWER Nondiscrimination
testing: IRC401(a)(4), including permitted disparity IRC 401(l)
Treatment of forfeitures: IRC401(a)(8)
Minimum distributions: IRC401(a)(9)
Provision and calculation of QJSA: IRC401(a)(11) and 417
Limitations under IRC 415
IRC401(a)(26) (minimum ppt test) applies only to DB plans
5 year break-in-service rule under vesting requirements: IRC411(a)(6)(c)
applies only to DC plans and fully insured DB plans
The manner of calculating top heavy minimum benefits: IRC416
