CRPC SAMPLE TESTS WITH QUESTIONS AND ANSWERS
__________ is a coherent set of guidelines for managing financial assets according to the client's goals
and the realities of the investment market.
End Investment Section - -investment policy
The investment policy statement is a blueprint for the financial management process that is aligned with
the goals of the client but also in line with market reality.
-. An employee retired at the end of 2015 and is eligible to receive a benefit from her employer's
traditional defined benefit plan. Her highest consecutive annual salaries for purposes of determining her
pension benefit were $90,000, $100,000, and $110,000, respectively, in 2013, 2014, and 2015. What is
the maximum annual benefit that may be paid to her by the plan? - -$100,000
The maximum annual benefit that may be paid to her by the plan equals the lesser of 100% of the
average of her highest consecutive salaries ($100,000) or $210,000 (indexed for 2015). Therefore, the
maximum annual benefit that may be paid to her by the plan equals $100,000.
-. Graham recommended that nonprofessional investors apply which of the following rules of thumb? - -
Buy stocks for two-thirds or less of their net current assets
-. John Wilts, age 45, is the only participant in JRW Corporation's qualified profit sharing plan. John's
compensation for the 2015 plan year is $260,000. What is the maximum employer contribution that may
be allocated to John's profit sharing plan account for the 2015 plan year? - -$53,000
Profit sharing plans limit employer contributions to 25% of plan participants' total compensation (25% x
$260,000 = $65,000); however, the annual addition to each participant's account is limited to the lesser
of 100% of compensation or $53,000 for 2015. Annual additions include employer contributions,
employee contributions, and forfeitures. Therefore, the maximum contribution that may be allocated to
John's profit sharing account is $53,000 for 2015.
-"Bridge jobs" describe periods of partial retirement for older workers. Which of the following
statements regarding bridge jobs is NOT TRUE? - -They generally represent a move up the
socioeconomic ladder, from less-skilled to more-skilled jobs.
Bridge jobs generally represent a move down the socioeconomic ladder, from more-skilled to less-skilled
jobs or from white-collar to blue-collar jobs.
-"Excess" earned income by Social Security beneficiaries who are under Social Security's full retirement
age - -results in a partial or full loss of benefits, depending on the age of the person, the amount of
Social Security benefit, and the amount of earned income. The following non-work sources of income do
not count as wages for the earnings test: IRA withdrawals; pension annuity payments; inheritance
payments; and dividend income.
-"Golden parachute" agreements may include all of the following, except - -reduced pension benefits.
Golden parachute agreements may include various combinations of cash, company stock, medical and
life insurance, extra pension benefits, and other benefits.
-2015 earnings cap - -$15,720
,-401(k) - -Qualified plans, such as Section 401(k) plans, must follow strict rules including minimum
participation and coverage requirements, minimum vesting standards, funding requirements, and
certain discrimination standards. These requirements are a part of the Internal Revenue Code, and
ERISA added additional requirements designed in favor of the employee.
-401k 2015 limit - -18,000
-45 Test 2: Susan Reynolds, age 47, who is married and files jointly, contributes 5% of her salary to her
employer's 401(k) plan; she and her husband have modified AGI of $105,000. If Susan makes a full
$5,500 contribution to an IRA, how much of this contribution will be deductible in 2015?
(LO 5-2) - -3,580: The following formula can be used to calculate the deductible amount of the Susan's
IRA contribution (rounded up to the nearest $10) for 2015:
UL = Upper dollar limit of the phaseout range for married individuals filing jointly = $118,000 (for 2015)
Top of phaseout range for married filing jointly = $20,000 (for 2015)
$5,500 x [($118,000 - $105,000)/$20,000] = $3,575 Rounded to $3,580
-457 plan deferrals can be paid the following participants EXCEPT - -one who has just recently turned
59½.
Amounts deferred under a Section 457(b) plan cannot be paid to a participant or beneficiary before age
70½ or termination of employment.
-A ____ penalty is imposed for failing to take the required minimum distribution (RMD). - -50%
The penalty for failing to take the RMD is 50% of the difference between what should have been taken
and what was taken.
-A ________ is exempt from the stringent requirements set by the Internal Revenue Code and the
Employee Retirement Security Act of 1974 (ERISA). - -deferred compensation plan
Nonqualified plans, such as deferred compensation plans, are typically designed to avoid these
requirements and benefit only certain employees. Nonqualified plans do not allow the employer to
deduct the costs associated with the plan.
-A _________ plan is a type of qualified plan that provides definitely determinable benefits. - -cash
balance plan
A cash balance plan is a type of pension plan. All pension plans must provide for benefits that are
definitely determinable.
-A "rising equity glidepath" typically will lead to a(n) equity exposure over one's lifetime. - -decreased
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
-A bond has a duration of 8 years. If market interest rates rise by 1%, the percentage price change of the
bond is approximately - -an 8% decline.
The approximate percentage price change in the bond is: 8 duration * 1% rise in rates = -8% price move
-A bond portfolio strategy that splits the portfolio between _____________ bonds is referred to as a
barbell strategy. - -short-term and long-term
,A barbell strategy splits the bond portion of a portfolio between short-term and long-term bonds. Both
ends may then stagger maturities similar to the ladder strategy. For example, the short-term end may be
constructed with bonds of maturities five years or less and the long-term end may be constructed with
bonds of maturities greater than 10 years.
-A cash balance pension plan - -is a defined benefit plan with design features similar to a defined
contribution plan. There is generally a hypothetical account for each participant. The annual employer
contributions must reflect a uniform allocation formula based on compensation or a flat dollar amount.
When a cash balance plan provides that the employer contribution is based upon a percentage of
compensation—for example 8%—the plan is a career average pay plan. Interest credited to participants'
"accounts" is usually specified in the plan document as a fixed rate—for example 6%.
-A characteristic of an unfunded excess Benefit Plan - -Unfunded excess benefit plans need not comply
with either the disclosure or reporting requirements of erisa
-a correct statement regarding Roth 401(k)s? - -A Roth-only 401(k) plan is not permitted. Therefore, a
401(k) contribution program must, at a minimum, give participants the option of making pretax elective
deferrals to the plan instead of after-tax Roth 401(k) deferrals (or both).
A 401(k) may provide for automatic enrollment in the Roth 401(k) feature of the plan.
A participant cannot retroactively designate before-tax elective deferrals as Roth 401(k) contributions.
A participant's employer must treat Roth 401(k) contributions as taxable income to the participant at
the time of contribution.
-A direct rollover is a transaction in which benefits from a qualified plan are rolled over directly to - -
another eligible retirement plan.
A direct rollover may be accomplished by any reasonable means of direct payment to an eligible
retirement plan, including a wire transfer or mailing of a check negotiable only by the plan's trustee.
Using a conduit IRA is a means of an indirect rollover.
-A direct rollover may be accomplished by providing a distributee with a check payable to the custodian
or trustee of the rollover plan or IRA, and appropriate instructions. - -IRS regulations indicate that
providing a distributee with a check made payable to a trustee for delivery is an acceptable way to
accomplish a direct rollover. Providing the distributee with a check and instructing the distributee to
deliver the check to the trustee of an eligible retirement plan is a reasonable means of accomplishing a
direct rollover. Under current rules, mandatory 20% withholding is imposed on a qualified plan or TSA
distribution (if the distribution is eligible for rollover treatment) if the plan issues a distribution check to
the participant (answer a.). Corrective distributions of excess deferrals and hardship distributions from
401(k) plans (answers b. and c. respectively) do not qualify as eligible rollover distributions.
-a disability income policy so as to be indemnified for income lost when he is unable to work - -The
integration (coordination) of benefits clause generally reduces the policy's benefits by any amount
received from Social Security or workers' compensation, but not by the amount of benefits received
from other personally owned insurance policies.
The coordination of benefits clause may also reduce benefits to the extent state disability payments are
made and, if the policy is a group policy, by any pension benefits received by the disabled employee
, from a plan provided by the same employer. The elimination period is the period of time after the
disability occurs and before payments begin. The elimination period should not be confused with the
probation period, which is the period of time between the issue of the policy and when specified
disabilities are covered. A social insurance rider is often added to individual policies to reduce the
premium; it is similar to a coordination of benefits provision.
A social insurance rider (a type of contract) is sometimes added to a disability insurance policy to make
sure that individuals who are insured receive the full amount of their benefits in the event that the
Social Security Administration or worker's compensation board denies their disability claim. However,
any amount received in the form of government disability benefits offsets the amount of social
insurance rider disability benefits that an individual is entitled to receive.
A residual disability benefit pays when the insured is not totally disabled, but nonetheless suffers a
decrease in income as a result of a disability.
-A fixed benefit formula - -provides a benefit based on a participant's average compensation.
-A Medicare Part A patient must pay - -all costs for a hospital stay beyond 150 days.
The patient must pay all costs related to a hospital stay beyond 150 days. Answer b. is wrong because it
describes a gap in Medicare Part B coverage, not Part A. Answer c. is incorrect because it does not
describe a gap; Medicare pays for the cost of the first 60 days in a hospital, but the patient must pay the
Part A deductible. Answer d. is wrong because Medicare will pay the approved charges for the first 20
days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days (the patient
pays the per day copayment) or the need for custodial care.
-a Medigap insurance policy is designed to cover which one of the following Medicare-approved charges
that are not paid by Medicare? - -deductibles or coinsurance amounts
The costs not covered by either Part A or Part B of Medicare are referred to as Medicare gaps or
Medigaps. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what
Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by
Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The
cost and services covered by Medigap policies varies from vendor to vendor and from plan to plan.
Some, but not all, Medigap policies cover such items as at-home recovery deductibles, skilled nursing
coinsurance amounts, and Medicare Part B excess amounts.
-A non-springing durable power of attorney - -remains effective after the principal becomes
incapacitated.
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
-a participant in a qualified retirement plan who has a domestic partner? - -he participant may name the
partner as sole beneficiary of the plan benefits, but is not required to do so.
-A person that has attained his or her Social Security full retirement age will __________ earned in
excess of the annual limit on earned income ($41,880 in 2015). - -incur no reduction on income
__________ is a coherent set of guidelines for managing financial assets according to the client's goals
and the realities of the investment market.
End Investment Section - -investment policy
The investment policy statement is a blueprint for the financial management process that is aligned with
the goals of the client but also in line with market reality.
-. An employee retired at the end of 2015 and is eligible to receive a benefit from her employer's
traditional defined benefit plan. Her highest consecutive annual salaries for purposes of determining her
pension benefit were $90,000, $100,000, and $110,000, respectively, in 2013, 2014, and 2015. What is
the maximum annual benefit that may be paid to her by the plan? - -$100,000
The maximum annual benefit that may be paid to her by the plan equals the lesser of 100% of the
average of her highest consecutive salaries ($100,000) or $210,000 (indexed for 2015). Therefore, the
maximum annual benefit that may be paid to her by the plan equals $100,000.
-. Graham recommended that nonprofessional investors apply which of the following rules of thumb? - -
Buy stocks for two-thirds or less of their net current assets
-. John Wilts, age 45, is the only participant in JRW Corporation's qualified profit sharing plan. John's
compensation for the 2015 plan year is $260,000. What is the maximum employer contribution that may
be allocated to John's profit sharing plan account for the 2015 plan year? - -$53,000
Profit sharing plans limit employer contributions to 25% of plan participants' total compensation (25% x
$260,000 = $65,000); however, the annual addition to each participant's account is limited to the lesser
of 100% of compensation or $53,000 for 2015. Annual additions include employer contributions,
employee contributions, and forfeitures. Therefore, the maximum contribution that may be allocated to
John's profit sharing account is $53,000 for 2015.
-"Bridge jobs" describe periods of partial retirement for older workers. Which of the following
statements regarding bridge jobs is NOT TRUE? - -They generally represent a move up the
socioeconomic ladder, from less-skilled to more-skilled jobs.
Bridge jobs generally represent a move down the socioeconomic ladder, from more-skilled to less-skilled
jobs or from white-collar to blue-collar jobs.
-"Excess" earned income by Social Security beneficiaries who are under Social Security's full retirement
age - -results in a partial or full loss of benefits, depending on the age of the person, the amount of
Social Security benefit, and the amount of earned income. The following non-work sources of income do
not count as wages for the earnings test: IRA withdrawals; pension annuity payments; inheritance
payments; and dividend income.
-"Golden parachute" agreements may include all of the following, except - -reduced pension benefits.
Golden parachute agreements may include various combinations of cash, company stock, medical and
life insurance, extra pension benefits, and other benefits.
-2015 earnings cap - -$15,720
,-401(k) - -Qualified plans, such as Section 401(k) plans, must follow strict rules including minimum
participation and coverage requirements, minimum vesting standards, funding requirements, and
certain discrimination standards. These requirements are a part of the Internal Revenue Code, and
ERISA added additional requirements designed in favor of the employee.
-401k 2015 limit - -18,000
-45 Test 2: Susan Reynolds, age 47, who is married and files jointly, contributes 5% of her salary to her
employer's 401(k) plan; she and her husband have modified AGI of $105,000. If Susan makes a full
$5,500 contribution to an IRA, how much of this contribution will be deductible in 2015?
(LO 5-2) - -3,580: The following formula can be used to calculate the deductible amount of the Susan's
IRA contribution (rounded up to the nearest $10) for 2015:
UL = Upper dollar limit of the phaseout range for married individuals filing jointly = $118,000 (for 2015)
Top of phaseout range for married filing jointly = $20,000 (for 2015)
$5,500 x [($118,000 - $105,000)/$20,000] = $3,575 Rounded to $3,580
-457 plan deferrals can be paid the following participants EXCEPT - -one who has just recently turned
59½.
Amounts deferred under a Section 457(b) plan cannot be paid to a participant or beneficiary before age
70½ or termination of employment.
-A ____ penalty is imposed for failing to take the required minimum distribution (RMD). - -50%
The penalty for failing to take the RMD is 50% of the difference between what should have been taken
and what was taken.
-A ________ is exempt from the stringent requirements set by the Internal Revenue Code and the
Employee Retirement Security Act of 1974 (ERISA). - -deferred compensation plan
Nonqualified plans, such as deferred compensation plans, are typically designed to avoid these
requirements and benefit only certain employees. Nonqualified plans do not allow the employer to
deduct the costs associated with the plan.
-A _________ plan is a type of qualified plan that provides definitely determinable benefits. - -cash
balance plan
A cash balance plan is a type of pension plan. All pension plans must provide for benefits that are
definitely determinable.
-A "rising equity glidepath" typically will lead to a(n) equity exposure over one's lifetime. - -decreased
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
-A bond has a duration of 8 years. If market interest rates rise by 1%, the percentage price change of the
bond is approximately - -an 8% decline.
The approximate percentage price change in the bond is: 8 duration * 1% rise in rates = -8% price move
-A bond portfolio strategy that splits the portfolio between _____________ bonds is referred to as a
barbell strategy. - -short-term and long-term
,A barbell strategy splits the bond portion of a portfolio between short-term and long-term bonds. Both
ends may then stagger maturities similar to the ladder strategy. For example, the short-term end may be
constructed with bonds of maturities five years or less and the long-term end may be constructed with
bonds of maturities greater than 10 years.
-A cash balance pension plan - -is a defined benefit plan with design features similar to a defined
contribution plan. There is generally a hypothetical account for each participant. The annual employer
contributions must reflect a uniform allocation formula based on compensation or a flat dollar amount.
When a cash balance plan provides that the employer contribution is based upon a percentage of
compensation—for example 8%—the plan is a career average pay plan. Interest credited to participants'
"accounts" is usually specified in the plan document as a fixed rate—for example 6%.
-A characteristic of an unfunded excess Benefit Plan - -Unfunded excess benefit plans need not comply
with either the disclosure or reporting requirements of erisa
-a correct statement regarding Roth 401(k)s? - -A Roth-only 401(k) plan is not permitted. Therefore, a
401(k) contribution program must, at a minimum, give participants the option of making pretax elective
deferrals to the plan instead of after-tax Roth 401(k) deferrals (or both).
A 401(k) may provide for automatic enrollment in the Roth 401(k) feature of the plan.
A participant cannot retroactively designate before-tax elective deferrals as Roth 401(k) contributions.
A participant's employer must treat Roth 401(k) contributions as taxable income to the participant at
the time of contribution.
-A direct rollover is a transaction in which benefits from a qualified plan are rolled over directly to - -
another eligible retirement plan.
A direct rollover may be accomplished by any reasonable means of direct payment to an eligible
retirement plan, including a wire transfer or mailing of a check negotiable only by the plan's trustee.
Using a conduit IRA is a means of an indirect rollover.
-A direct rollover may be accomplished by providing a distributee with a check payable to the custodian
or trustee of the rollover plan or IRA, and appropriate instructions. - -IRS regulations indicate that
providing a distributee with a check made payable to a trustee for delivery is an acceptable way to
accomplish a direct rollover. Providing the distributee with a check and instructing the distributee to
deliver the check to the trustee of an eligible retirement plan is a reasonable means of accomplishing a
direct rollover. Under current rules, mandatory 20% withholding is imposed on a qualified plan or TSA
distribution (if the distribution is eligible for rollover treatment) if the plan issues a distribution check to
the participant (answer a.). Corrective distributions of excess deferrals and hardship distributions from
401(k) plans (answers b. and c. respectively) do not qualify as eligible rollover distributions.
-a disability income policy so as to be indemnified for income lost when he is unable to work - -The
integration (coordination) of benefits clause generally reduces the policy's benefits by any amount
received from Social Security or workers' compensation, but not by the amount of benefits received
from other personally owned insurance policies.
The coordination of benefits clause may also reduce benefits to the extent state disability payments are
made and, if the policy is a group policy, by any pension benefits received by the disabled employee
, from a plan provided by the same employer. The elimination period is the period of time after the
disability occurs and before payments begin. The elimination period should not be confused with the
probation period, which is the period of time between the issue of the policy and when specified
disabilities are covered. A social insurance rider is often added to individual policies to reduce the
premium; it is similar to a coordination of benefits provision.
A social insurance rider (a type of contract) is sometimes added to a disability insurance policy to make
sure that individuals who are insured receive the full amount of their benefits in the event that the
Social Security Administration or worker's compensation board denies their disability claim. However,
any amount received in the form of government disability benefits offsets the amount of social
insurance rider disability benefits that an individual is entitled to receive.
A residual disability benefit pays when the insured is not totally disabled, but nonetheless suffers a
decrease in income as a result of a disability.
-A fixed benefit formula - -provides a benefit based on a participant's average compensation.
-A Medicare Part A patient must pay - -all costs for a hospital stay beyond 150 days.
The patient must pay all costs related to a hospital stay beyond 150 days. Answer b. is wrong because it
describes a gap in Medicare Part B coverage, not Part A. Answer c. is incorrect because it does not
describe a gap; Medicare pays for the cost of the first 60 days in a hospital, but the patient must pay the
Part A deductible. Answer d. is wrong because Medicare will pay the approved charges for the first 20
days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days (the patient
pays the per day copayment) or the need for custodial care.
-a Medigap insurance policy is designed to cover which one of the following Medicare-approved charges
that are not paid by Medicare? - -deductibles or coinsurance amounts
The costs not covered by either Part A or Part B of Medicare are referred to as Medicare gaps or
Medigaps. Medigap insurance is designed to supplement Medicare's benefits by filling in some of what
Medicare does not cover. A Medigap policy pays for Medicare-approved charges that are not paid by
Medicare because of deductibles or coinsurance amounts for which the beneficiary is responsible. The
cost and services covered by Medigap policies varies from vendor to vendor and from plan to plan.
Some, but not all, Medigap policies cover such items as at-home recovery deductibles, skilled nursing
coinsurance amounts, and Medicare Part B excess amounts.
-A non-springing durable power of attorney - -remains effective after the principal becomes
incapacitated.
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
-a participant in a qualified retirement plan who has a domestic partner? - -he participant may name the
partner as sole beneficiary of the plan benefits, but is not required to do so.
-A person that has attained his or her Social Security full retirement age will __________ earned in
excess of the annual limit on earned income ($41,880 in 2015). - -incur no reduction on income
