RPA 1 - Final Exam 100 Questions- all with correct Answer

Top-hat plan - Answer- A retirement plan that is unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a "select group of management or highly compensated employees" is called a (n): Economic Benefit - Answer- A theory of income taxation that imposes current tax liability on taxpayers who receive something of reasonable value is known as the doctrine of: Must be given the election to remain under the pre-amendment vesting schedule for both pre-and post-amendment benefit accruals. - Answer- An employee with four years of service participates in a retirement plan. The vesting schedule in this plan is changed by plan amendment. Under tax law, this plan participant: An example of a sponsor of a 403(b) plan is - Answer- public college Contributions to a profit sharing plan must be made on - Answer- A substantial and reoccurring basis Employees withdrawing contributions from a savings incentive match plan for employees (SIMPLE plan) individual retirement account (IRA) during the two-year period beginning on the date of initial participation are subject to a penalty tax of - Answer- 25 percent Federal law defines normal retirement age to be the age specified in the plan, but it cannot occur beyond the later of - Answer- Age 65 or the fifth anniversary of the participant's date of initial participation For a distribution from a Roth IRA account to receive favorable tax treatment as a qualified distribution, how long must contributions be in the account? - Answer- 5 years For all defined contribution plans, there is a uniform employer deduction limit of - Answer- 25% of compsensation How did the Pension Protection Act of 2006 change requirements for investment advice provided to individual retirement account (IRA) owners? - Answer- The Act requires that fees for such advice not be contingent on the investment option chosen. If a contribution to a profit sharing plan exceeds the maximum deductible contribution limit, the employer can carryover the excess contribution to the succeeding year, but will be subject to an excise tax on the excess contribution of: - Answer- 10 percent If you knew that a vendor servicing a 401(k) plan was clearing trades internally and not using an outside directed trustee, you generally could conclude that: - Answer- The vendor was providing plan services as a bundled service provider. In 1948 the National Labor Relations Board (NLRB) found that the provisions of retirement plans affect conditions of employment and that retirement benefits constitute: - Answer- Wages In addition to current income taxation, any excess contribution to an individual retirement account (IRA) is subject to a nondeductible excise tax of: - Answer- 6 percent n general, the aggregate amount of employer contribution allocated to a younger employee under a defined contribution plan compared to that under a defined benefit plan is: - Answer- A higher amount Key employees, for purposes of the top-heavy rules, include all: - Answer- One percent owners receiving annual compensation in excess of $150,000 Of all of the following factors in the Black-Scholes option pricing model, which one is generally deemed to have the most relative impact on the value of the option? - Answer- The expected volatility of the underlying stock's market price The annual limit on deferral amounts for an ineligible Section 457 plan is - Answer- Unlimited The limitation on exclusions for elective deferrals under 401(k) plans is: - Answer- Indexed in increments established by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) The most frequently used criterion to establish participation in a supplemental executive retirement plan (SERP) is: - Answer- Position and management status The Supreme Court ruled in Arizona Governing Committee v. Norris that: - Answer- Life annuities under an employer-sponsored defined contribution plan must be provided on a uniform basis The vesting provision of executive retirement arrangements: - Answer- Varies depending on the intent of the executive arrangement Those questioning the validity of the human depreciation concept of private pensions would argue that the employer should be held responsible only for the increase in the rate of aging caused by: - Answer- Occupational hazards To receive tax-preferred treatment under an ineligible Section 457 plan, amounts deferred must be - Answer- Subject to a substantial risk of forfeiture Under a percentage of earnings per year of service formula, the typical range for the percentage of earnings credited is: - Answer- 1% to 1.25% Under a technique known as a wage-related formula, the impact of postretirement inflation on pension income is - Answer- Measured on the basis of current wage measures to adjust benefits Under certain conditions, a nonworking spouse may establish an individual retirement account (IRA) using which of the following types of payments as the basis for eligibility to make contributions? - Answer- Earned income of a working spouse Under the Employee Retirement Income Security Act of 1974 (ERISA), a fiduciary shall discharge his (or her) duties with respect to an employee benefit plan solely in the interest of: - Answer- The plan's participants and beneficiaries Under the Pension Protection Act of 2006, a benefit statement must be provided to a plan participant of a defined contribution plan entitled to direct plan investments - Answer- Once a quarter Under which of the following situations are premature distributions from individual retirement accounts (IRAs) exempt from the early distribution penalty tax? - Answer- Distributions because of an Internal Revenue Service levy on the account to pay Which Internal Revenue Code Section generally mandates that, except for certain exceptions that meet specific requirements, income from deferred compensation arrangements may no longer be deferred beyond the year in which such compensation is earned? - Answer- Section 409A Which of the following are types of eligible Section 457 plans that must be unfunded? - Answer- Plans maintained by nongovernmental tax-exempt organizations Which of the following plans is used in conjunction with debt financing? - Answer- An employee stock ownership plan Which of the following statements describes the tax treatment of nonqualified stock options for the employer - Answer- The employer gets a corporate income tax deduction for the amount of compensation income the employee realizes at the exercise of the option An employer can take which of the following actions regarding a retirement plan covering organized workers without the approval of the authorized bargaining agent for those employees? -Install a retirement plan -Terminate a retirement plan -Alter the terms of a retirement plan - Answer- None Generally most profit sharing plans do not have difficulties passing the nondiscrimination-in-contributions requirements for which of the following reasons? Profit sharing plans must have a definite predetermined contribution formula. Vesting schedules favor lower paid employees. The definition for breaks-in-service is more stringent than the one used for pension plans. - Answer- None In order for a computer model to be used to provide personally tailored investment advice to 401(k) plan participants, which of the following conditions must be met? -The model must be certified by an independent investment expert. -The model must meet specified audit requirements. -The model must be provided free of charge or at a de minimus fee to plan participants. - Answer- 1 & 2 In special cases, an amount above the annual 402(g) limit may be contributed by employees (even those under age 50) to a 403(b) plan under a salary reduction agreement. Which of the following statements regarding these special cases is (are) correct? - In these cases the employee must have a minimum of 15 years of service with the organization. - In no event may the employee contribute more than an additional $3,000 above the 402(g) limit in a single year. - An eligible employee can contribute a maximum of $5,000 in additional aggregate contributions. - Answer- 1 & 2 Provided it is allowable under the contract, which of the following actions could be taken by the owner of a 403(b) annuity? - Elect a reduced paid-up annuity. - Exchange the contract for a reduced annuity with an earlier maturity date. - Surrender the contract in order to transfer the proceeds to another issuer if certain conditions are met. - Answer- 1, 2, & 3 Reasons for deferring current income through a deferred compensation agreem