Which of the following is a characteristic of a traditional defined benefit pension plan?

I. The plan specifies the benefit an employee receives.

II. The plan has less predictable costs than defined contribution plans.

III. The law specifies that the maximum allowable benefit payable from the plan is equal to the lesser of 100% of salary or $230,000 (2020) per year.

IV.The plan assigns the risk of preretirement inflation, investment performance, and adequacy of retirement income to the employee.

A. I, II, and III

B. I and II

C. I, III, and IV

D. III and IV

Joe's employer has a defined benefit pension plan and he has worked for the company for 20 years. His highest salaries occurred in the final 3 years before retirement: $261,000, $270,000, and $290,000. Without considering the formula used to arrive at his retirement benefit amount, what is Joe's maximum possible benefit from the defined benefit pension plan if he retires in 2020?

A. $273,667

B. $270,330

C. $290,000

D. $230,000

All of the following statements regarding traditional profit-sharing plans are correct except:

A. they may allow hardship withdrawals

B. they are suitable for employers with fluctuating cash flows

C. they allow funding flexibility for the employer

D. they require the employer to assume the risk of poor investment performance

Which of the following statements regarding profit-sharing plans is (are) CORRECT?

I. The maximum tax-deductible employer contribution to a profit-sharing plan is 25% of total covered employee compensation.

II. Company profits are required to make contributions to a profit-sharing plan.

III. Companies adopting a profit-sharing plan are required to make annual contributions to the plan.

IV.Profit-sharing plans are only suited for companies with predictable cash flows.

A. II and IV

B. I, II, and IV

C. I, II, and III

D. I only

An employee stock ownership plan (ESOP) is a defined contribution plan that may provide the employer with which of the following advantages?

I. Increased corporate cash flow.

II. The ability to borrow money to purchase corporate stock.

III. A market for employer stock.

IV.Financial resources to expand the business.

A. I, II, III, and IV

B. III and IV

C. I and II

D. I, and II, and III

Which of the following is(are) a permitted vesting schedule for a SIMPLE 401(k)?

I. 3-year cliff

II. 2-to-6-year graded

III. 100% immediate vesting

IV.3-to-7-year graded

A. III only

B. IV only

C. I, II, and III

D. I, II, III, and IV

The distribution of earnings from Roth 401(k) employee contributions is tax free if which of the following tests is(are) met?

I. The distribution must be made after a five-year period from the date of the first regular contribution to the Roth 401(k) plan.

II. The distribution is made after the date on which the participant has attained age 62 or becomes disabled, or it is made to a beneficiary of a deceased participant.

A. Both I and II

B.I only

C. II only

D. Neither I nor II

Which of the following statements regarding a taxpayer who receives a lump-sum plan distribution consisting at least partially of employer stock is(are) CORRECT?

I.The net unrealized appreciation (NUA) portion of a lump-sum distribution stock is taxed at ordinary income tax rates when sold.

II.The taxpayer will not be liable for income tax on the net unrealized appreciation (NUA) portion of the distribution until the stock is sold or otherwise disposed of.

A.Neither I nor II

B.Both I and II

C. I only

D. II only

There are primary factors that should guide you in recommending the type of retirement plan for your business owner clients. Which of the following correctly describes each factor?

I. The owner's attitude toward investment riskthe owner-employer may not wish to assume the risk of investment for the employees.

II. The owner's current agethe closer the owner is to the desired retirement date, the more immediate the owner's savings need will be.

III.The owner's retirement savings needthe larger the sum of money the owner needs to save for personal retirement needs, the larger the annual amount needed to reach this goal.

IV.The current financial condition of the businessthe ability to sustain annual plan contributions is critical in choosing between any type of pension plan versus any profit-sharing plan for the business.

A. II and III

B.I, II, III, and IV

C.I, III, and IV

D.I, II, and IV

Assume Bernard, age 55, is planning to retire in 10 years at age 65. He is a sole proprietor of a business with 15 employees but has not yet implemented a formal retirement plan for the business. Bernard's company currently has a strong cash flow which is expected to continue. His own personal savings retirement need is $85,000 per year, and Bernard pays himself only $95,000. The company can afford to contribute $100,000 this year for Bernard's account to any retirement plan that is implemented.

Furthermore, Bernard will commit to an annual contribution necessary to fund the retirement plan if needed. Considering only this limited information, which of the following types of qualified retirement plans would you recommend for Bernard and his business?

A.Profit-sharing plan

B.Traditional defined benefit pension plan

C.Stock bonus plan

D.Money purchase pension plan

A qualified plan is

I.a company-sponsored retirement plan with benefits guaranteed by the Employee Retirement Income Security Act (ERISA).

II.a tax-efficient way to save for retirement.

III.only applicable for firms with 50 or more employees.

IV.considered a plan that benefits highly compensated employees only.

A.II only

B.I and III

C. II and IV

D. II, III, and IV

Napoleon Enterprises sponsors a SIMPLE 401(k) for its employees. Under the plan, the company matches employee contributions up to 3% of compensation. Which of the following statements about Napoleon Enterprises' SIMPLE 401(k) is CORRECT?

A. Withdrawals made within 2 years of initial participation are subject to a 25% premature distribution penalty tax

B.Employees cannot make after-tax contributions to the plan

C.Napoleon Enterprises can match as little as 1% of compensation for 2 out of 5 years

D. Napoleon Enterprises' contributions must be vested using either a 3-year cliff or 2-to-6-year vesting schedule

Sam is a sole proprietor of a business with 15 employees. He would like to implement a formal retirement plan for his business. Sam is 55 years old and is planning to retire in 10 years at age 65. His company currently has a strong cash flow, which is expected to continue. Sam's own personal savings retirement need is $85,000 per year, and he pays himself $95,000 annually. The company can afford to contribute $100,000 this year for Sam's account to any retirement plan that is implemented.

Sam will also commit to an annual contribution necessary to fund the retirement plan if needed. Based on limited information, which of the following types of qualified retirement plans would you recommend for Sam and his business?

A. Traditional defined benefit pension plan

B.Stock bonus plan

C.Profit-sharing plan

D. Money purchase pension plan