Jan 22, 2018 sample paper

Which of the following types of employer plans are exempt from most or all ERISA provisions?

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MULTIPLE CHOICE

13. All of the following are true regarding
tax implicatons of cash balance plans, except

a. employer
contributions to the plan are deductible when made

b. taxation of the
employee on employer contributions is deferred

c. the plan is not
subject to minimum funding rules of the Internal Revenue Code

d. certain employers
who adopt a cash balance plan may be eligible for a business tax credit up to $500

e. employees may make
voluntary contributions to a “deemed IRA” established under the plan

14. Which of the following is (are) true
regarding elective deferrals in a Section 401(k)?

a. elective deferrals
are not subject to Social Security and Federal Unemployment payroll taxes

b. elective deferrals
are always made on an after-tax basis

c. if the company
elects to have a safe harbor plan, elective deferrals must meet the actual
deferral percentage test

d. account funds can
be withdrawn without a premature distribution penalty if the employee becomes
disabled or dies

e. since employees
elect the amount of funds to defer, nondiscrimination tests do not apply to
elective deferrals

15. Which of the following types of employer
plans are exempt from most or all ERISA provisions?

a. plans of state,
federal, or local governments or governmental organizations

b. plans of churches,
synagogues, or related organizations

c. plans maintained
solely to comply with workers’ compensation, unemployment compensation, or
disability insurance laws

d. all of the above

e. none of the above
because no employer plans are exempt from ERISA provisions

16. Irrevocable Life Insurance Trusts (ILIT) are primarily designed to ensure
that the death benefit is excludable from the insured’s federal gross estate.

a. true

b. false

17.All of the following
approaches are commonly used to increase the security of benefits for an
employee under a nonqualified deferred compensation plan, except

a. employer’s general
assets

b. reserve account
maintained by employer

c. third-party
guarantees

d. corporate-owned
life insurance

e. employer reserve
account with employee investment direction

18. Paul owns the following property:

  1. Boat (fee simple)
  2. Condominium on the beach (tenancy in common
    with his brother and sister)
  3. House and two cars with his wife, Karen
    (tenancy by the entirety)
  4. Checking account with his son, William (POD)
  5. Karate business (JTWROS with his partner, Mike)

Which item(s) will go through probate, if any?

19.Two brothers have
consulted you about the purchase of a lakefront cottage. The brothers plan to
use the cottage on a seasonal basis. They are unsure of how they should title
the property. Which of the following items of information do you need to obtain
before making a recommendation?

  1. The purchase
    price of the cottage
  2. How much each
    brother plans to contribute toward the purchase of the cottage
  3. Whether the
    brothers want their interest in the cottage to pass under their wills when
    they die
  1. 1 and 2
  2. 3 only
  3. 1, 2, and 3
  4. 2 and 3

20. Are all of the
items listed below reasons why having a will is important? (True or False)

  1. The state
    directs how the decedent’s property is transferred
  2. A spouse’s
    share of the decedent’s estate may be equal to a child’s
  3. Children may be
    treated equally although not equitably
  4. May require the
    appointment of an administrator who will usually have to furnish a surety
    bond, thereby raising the costs of administration
  5. The
    administrator of the estate is determined by the court

21. Annual additions to an age-weighted plan
include

a. employer
contributions to participants’ accounts

b. employee
contributions to own account

c. forfeitures from other accounts

d. only a and b

e. all of the above

22. Which plan has benefit levels that are
guaranteed by both the employer and the Pension Benefit Guaranty Corporation
(PBGC)?

a. money purchase plan

b. target benefit plan

c. cross tested plan

d. defined benefit
plan

e. tax-deferred
annuity

23. Advantages of defined benefit plans
include all of the following, except

a. defined benefit
plans are easy to design and easy to explain to employees

b. employees obtain a
tax-deferred retirement savings medium

c. retirement benefits
at adequate levels can be provided for all employees regardless of age

d. benefit levels are
guaranteed both by the employer and, for some plans, by the PBGC

e. for an older highly
compensated employee, a defined benefit plan will allow the maximum amount of
tax-deferred retirement saving

24. Which of the following is (are) true regarding
the tax implications of having a money purchase plan?

a. employer
contributions and plan earnings are tax-deferred for the employee

b. employers beginning
a new plan are eligible for a $2,500 business tax credit in the first year to
help with startup costs

c. the employer tax
deduction is limited to 25% of total payroll of the employees covered under the
plan

d. only a and b

e. only a and c

25. All of the following are true regarding
money purchase plans, except

a. most money purchase
plan benefit formulas use a factor related to the employee’s service that
favors owners and key employees

b. nondiscrimination
regulations provide a safe harbor for money purchase plans

c. a plan benefit
formula can be integrated with Social Security

d. forfeitures,
unvested amounts left behind by employees in their plans, can be used to reduce
future employer contributions

e. money purchase plan
funds are generally invested in a pooled account managed by the employer or a
fund manager selected by the employer

26. A tax-free rollover of a Roth IRA can be
made to

a. another Roth IRA

b. a traditional IRA

c. a tax-deferred
annuity

d. a and b

6. a and c

27. Ways that a Roth IRA differs from a
traditional IRA include:

a. initial investment
and earnings can be withdrawn tax-free

b. Roth IRA
contributions can be made past age 59½

c. Roth IRAs are never
subject to minimum distribution rules

d. a and b

e. a and c

28. Directors of Xenon Corporation are
considering changing from a traditional defined benefit plan to another type of
plan. They have asked you to explain the
advantages and disadvantages of such a change.
You explain that if Xenon Corp. converts to

a. a defined
contribution plan, most or all plan assets would be credited immediately to
vested employees

b. a cash balance
plan, Xenon Corp. must increase the level of contribution to older employees

c. a cash balance
plan, Xenon Corp. would no longer need actuarial services

d. only a and b

e. only a and c

29. Maxton Manufacturing, Inc., uses prior
year testing to monitor discrimination in its Section 401(k) plan. Last year, the actual deferral percentage
(ADP) for all nonhighly compensated employees at Maxton was 4%. This year, the ADP for highly compensated
employees at Maxton can be as high as

a. 2%

b. 4%

c. 5%

d. 6%

e. 8%

30. The retirement plan for Bethel Shalom
synagogue must adhere to ERISA reporting and disclosure rules.

a. true

b. false

31. Harper Engineering, Inc., offers several
benefits to employees. Which of its benefits would be exempt from the ERISA
reporting and disclosure requirements?

a. Harper pays for
life insurance to provide for employee dependents if the employee dies

b. Harper gives each
employee a small gift worth less than $5 on St. Patrick’s Day

c. Harper has a scholarship
program that pays for employee tuition for industry-relevant continuing
education, based on the employee passing the course, out of the employer’s
general assets

d. b and c

e. a and c

32. Sentenal Corp., a restaurant supply
company, is a closely held business. Tom
Brady, founder and owner of the business is 59.
Jeff Alcorn, age 53, is a key employee.
The business employs 10 other rank-and-file employees earning an average
of $30,000 per year. Both Tom and Jeff
would like to contribute between $30,000 and $40,000 per year to a qualified
retirement account. The advantages of using a profit sharing, age-weighted plan
at Sentenal rather than a defined benefit plan include:

a. the age-weighted
plan is simpler to install

b. the age-weighted plan
is less expensive to administer

c. the age-weighted
plan allows more flexibility in plan contributions

d. all of the above

e. only a and b

33. The law firm of Willie, Cheatum, and Howe
is structured as a professional corporation that has three key employees
between ages 39 and 43, two law clerks in their late 20s, and two secretaries,
both age 31. The three key employees earn $500,000 per year. The law clerks are paid $30,000 and the
secretaries are paid $15,000 annually.
Turnover for both the law clerks and secretaries has been rather high,
with at least one law clerk and one secretary leaving about every 6 months for
the past year. Characteristics of the
firm that would make a cross-tested plan a less than optimal solution for the
firm include

a. the plan would have
to be reconsidered at each new hire

b. the plan would
provide relatively few advantages given the age of the highly compensated group

c. having more than
one highly compensated employee makes coverage tests related to the plan more
difficult to apply


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