Please see attachment. I do not know a lot of the answers.

Thank you.

FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E DIRECTIONS: Here is the Homework #4 Assignment. Use the Homework #4 Answer Sheet for your responses to the questions. When you have completed Homework #4 submit the Answer Sheet to your Homework #4 Assignment Folder. Please submit your Homework #4 in MS Word format with the following file name: LastNameFirstInitial_Homework04AnswerSheet.docx. For example, if your name is John Smith, the file name of your Answer Sheet should be SmithJ_Homework04AnswerSheet.docx. If you have any questions, please do not hesitate to contact your instructor Number 1 Question Stock bonus plans and ESOPs share many characteristics, but ESOPs have some unique characteristics. Which of the following characteristics is (are) unique to an ESOP? a. b. c. d. e. 2 Last year, the owner of Jackson Enterprises decided to contribute an additional $4,000 to each employee's 401(k) account. This amount was about four times the average annual contribution made by rank-and-file employees, but about even with the average annual contribution of the highly compensated employees. The $4,000 was about double the amount that the owner had contributed to employees' accounts the prior year. The form of employer contribution used at Jackson Enterprises is a. b. c. d. e. 3 accounts of employees over 55 must be offered diversification employer's ability to borrow to leverage ownership tax-free treatment of appreciated company stock distributed to a retiree a and b b and c formula matching discretionary matching pure discretionary formula contributions proportional contributions Sally Smith has a thrift/savings plan with her employer. She knows a. her contribution to the plan is voluntary and made with after-tax dollars b. 100% of her contribution to her account is vested immediately c. her employer's contributions to her account must comply with Internal Revenue Code requirements for qualified plans d. all of the above e. only a and b 1 FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E 4 T. L. Flowers, age 40, works for Evergreen Nursery, Inc., a garden and landscaping company. Evergreen uses both compensation and service as a basis for allocating Evergreen's $20,000 annual contribution to Evergreen's profit sharing plan. How much would be allocated to T. L.'s account if he received 40 units of credit for his 20 years of service and 160 units for $80,000 in earnings? Total units for all employees are 1,000. a. b. c. d. e. 5 Jack Smith, age 40, is an employee of Jansen Industries. Jansen has an ESOP. This year, the ESOP purchased stock for $500 and allocated it to Jack's account. Twenty-five years from today, Jack retires and receives this stock in a lump sum distribution. At the time of his retirement, the stock that was allocated to Jack's account this year is worth $5,000. Jack pays taxes on a. b. c. d. e. 6 $500 $4,500 $5,000 no tax at time of distribution; all initial deposits and gains taxed when stock is sold $500 at time of distribution; gains are taxed when the stock is sold 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. b. c. d. e. 7 $100 $2,000 $4,000 $8,000 need more information to calculate the age-weighted plan is simpler to install the age-weighted plan is less expensive to administer the age-weighted plan allows more flexibility in plan contributions all of the above only a and b Jay Casteel, age 29, ran a small water ski and jet ski rental shop in Gulf Shores. Unfortunately, near the end of the last season, a sudden storm with hurricane-force winds damaged or destroyed over half of his inventory. Revenues since the storm have been meager due to massive clean-up efforts and slower tourist trade. Jay is beginning to be pressured by some of his creditors. Jay has heard that the small Keogh fund that he started can be seized by his creditors if he cannot work out a repayment plan. You tell him that this is a. true b. false 2 FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E 8 Evergreen Semiconductors, Inc., is a young and innovative company with 25 employees between 24 and 35 years of age. Turnover has averaged about 2% per year for the 9year old company. Profit has been intermittent. The owners believe that a substantial investment will need to be made in new equipment next year. Which of the following retirement savings plans is best for Evergreen? a. b. c. d. e. 9 A Keogh plan is most commonly designed as a(n) a. b. c. d. e. 10 money purchase plan target benefit plan nonqualified deferred compensation plan defined benefit plan profit sharing plan defined benefit plan defined contribution plan 401(k) plan money purchase plan simplified employee pension (SEP) Advantages of an age-weighted plan include each of the following, except a. can maximize retirement benefits of employees who enter the plan at older ages b. can replace a defined benefit plan and give approximately the same benefit to most employees c. due to their predetermined structure, an age-weighted plan is exempt from nondiscrimination rules d. provides tax deferral while account investment grows e. can tend to favor owner and key employees 11 If employer contributions to a profit sharing plan are based on a discretionary provision, all of the following are true, except a. the employer can determine each year the amount to be contributed b. the employer can omit a contribution c. if too many years go by without an employer contribution, the IRS will likely claim that the plan has been terminated d. when a qualified plan is terminated, all nonvested amounts in participants' accounts are forfeited. e. all of the above are true 3 FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E 12 Pamela Renquist, owner of Advance Software Solutions, Inc., wants to install a stock-based retirement plan for herself and her employees. She has a young company that has averaged 5% a year growth since opening 5 years ago. Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutionsa stock bonus plan or an ESOP. You tell Pamela that a. both plans are identical except that an ESOP can be integrated with Social Security while a stock bonus plan cannot, making an ESOP less expensive to provide b. only a stock bonus plan requires a \"put option,\" making it more difficult to retire employees when company cash is short c. the ability to use the ESOP to borrow money with tax-deductible dollars could be advantageous to a young and growing business d. an ESOP will dilute company ownership, but the diversification requirements in a stock bonus plan prevent that from happening e. only an ESOP can be used to fund a corporate buy-sell agreement and should be used if Pamela wants to control business succession 13 For the self-employed owner of an unincorporated business, advantages of a Keogh plan over a traditional IRA include which of the following? a. employees of the business may be excluded from participation in the plan b. contribution limits for a Keogh are higher than limits for a traditional IRA c. income generated by investments in a Keogh are tax-deferred until withdrawn from the plan d. a and b e. b and c 14 22.10 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 d. all of the above e. none of the above 4 FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E 15 An advantage of a profit sharing plan from the employer's point of view includes which of the following? a. b. c. d. e. 16 Elective deferrals in a 401(k) plan can be distributed upon occurrence of all of the following, except a. b. c. d. e. 17 employer contributions to the plan are discretionary plan can benefit long-term employees nonvested benefits can be reallocated to remaining employees allows integration with Social Security all of the above retirement disability severance from employment with the employer attainment of age 55 by the participant plan termination (if the employer has no other defined contribution plan other than an ESOP) Ocatagon Industries has an age-weighted profit sharing plan that uses a fixed age-weighted formula for allocating employer contributions. The plan covers 50 employees. The owner and two key employees are highly compensated, each earning $500,000 per year. Average pay for the rank-and-file employees is $35,000 per year. This year, the company allocated $1,000 to each employee's retirement account. The tax implications of such an allocation include which of the following? a. because the plan is top-heavy, Ocatagon cannot receive a tax deduction until an employee withdraws funds from his or her retirement account b. participant does not pay income tax on employer contributions and earnings until the plan participant withdraws the funds c. plan distributions for hardship withdrawals made to employees before age 59 1/2 are tax free e. a and c 18 A savings/match plan works best in a company that has a. b. c. d. e. relatively young employees employees willing to accept investment risk employees who vary widely in their need or desire to save for retirement all of the above only b and c 5 FINC 355 RETIREMENT AND ESTATE PLANNING HOMEWORK #4E 19 John Wald has participated in his company's profit sharing plan for the past 15 years and currently has an account balance of $250,000. Last month, his 12-year-old son had to have an emergency appendectomy. Complications extended his hospital stay to a week. Right before the accident, John used all of the family savings to purchase a new car. John must pay a $2,000 deductible and an additional $5,000 for medical expenses not covered under his medical plan. If John withdraws $7,000 from his profit sharing plan, a. he is in big trouble because withdrawals from a profit sharing plan are not allowed by law b. he must pay income tax and a 10% penalty on the amount withdrawn c. he must pay income tax but face only a 5% penalty for early withdrawal because it is a hardship withdrawal d. all withdrawals from a profit sharing plan are penalty free, but income tax must be paid e. he would pay income tax, but no early withdrawal penalty to the extent the medical expenses are tax-deductible 20 Last year, employee contributions and employer matching contributions amounted to 4% of compensation for all nonhighly compensated employees at Addison Corporation, a 400-employee company. Which of the following options allow Addison to preserve a nondiscriminatory plan during this plan year? a. satisfying the requirements of a safe harbor 401(k) plan b. keeping the average ratio of nonhighly compensated employee contributions to highly compensated employee contributions at or below 4% to 6% c. making sure employee contributions meet the requirements for a SIMPLE 401(k) plan d. a and b e. a and c 6