RPA 1 Practice Questions

Question 1

the securities and exchange commission (sec) limits 12b-1 expenses to 100 basis points:

• Unless participants sign a fee waiver agreement
• On an annual basis
• On a monthly basis
• But allows an escalator to 150 basis points if disclosed in the prospectus
• But only when a contingent deferred sales charge also is charged

Answer 1

B

Question 2

the Daisy Company sponsors a 401(k) plan for all its employees at a certain location. the Daisy Company has 20,000 employees. the plan covers 11,000 of the 19,000 nonhighly compensated employees and 700 of the 1,000 highly compensated employees. All the following are correct statements concerning the plan’s compliance with the coverage tests eXCePt:

• The percentage of nonhighly compensated employees benefiting under the plan is 11,000⁄19,000, which is 58%.
• The percentage of nonhighly compensated to total employees is 11,000⁄20,000 or 55%.
• The percentage of highly compensated employees benefiting under the plan is 700⁄1,000, which is 70%.
• Since the plan benefits 70% of the highly compensated employees of the company, it passes the ratio test.
• Since 58%/70% is 83%, and this is greater than 70%, the plan meets the coverage requirements.

Answer 2

D

Question 3

which of the following statements describes a limitation of defined contribution retirement plan designs?

• Annual contribution limits include reallocated forfeitures and earnings realized in the previous plan year.
• Their contribution structures make them unsuitable for state and local government employers given the unique budgeting process of these entities.
• In general, they offer limited inflation protection once benefit distribution has commenced.
• The future favorable tax treatment of these designs is uncertain.
• Plan investment choices are constrained by statutory provisions limiting variability in investment returns.

Answer 3

C

Question 4

in a retirement plan, the right of a participant to receive his or her accrued plan benefit at normal or early retirement, whether or not in the service of the employer, is referred to as:

• (A) Integration
• (B) Benefit accrual
• (C) Annuity options
• (D) Vesting
• (E) Plan termination

Answer 4

D

Question 5

the economic growth and tax Relief Reconciliation Act of 2001 (egtRRA) changed the tax law so that the maximum exclusion allowance applicable to 403(b) plans was:

• Eliminated
• Increased in amount
• Decreased in amount
• Permanently frozen at 20% of includable compensation
• Modified in an inconsequential manner

Answer 5

A

Question 6

All the following are characteristics of a money purchase plan eXCePt:

• This type of defined contribution plan has become more popular with the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001.
• The plan is not subject to plan termination provisions of the Employee Retirement Income Security Act.
• The plan is subject to the defined contribution annual limits.
• The plan is required to maintain individual accounts for employees.
• The plan’s employer contributions are either a fixed amount or a fixed percentage of pay.

Answer 6

A

Question 7

All of the following statements describe retirement risk eXCePt:

• It is a form of investment risk.
• It can be diminished with the purchase of insurance and financial products.
• It is exacerbated by inflation.
• It is likely greater for participants of defined contribution plans than for those participating in defined benefit plans.
• It can be exacerbated by longevity.

Answer 7

A

Question 8

maximum deferrals in eligible section 457 plans must be coordinated with amounts excluded from income under which of the following plans?

1. section 401(k) plans
2. simplified employee pensions
3. section 403(b) plans

None

I and II only

I and III only

II and III only

I, II and III

Answer 8

A

Question 9

for profit-sharing plans, the maximum deductible contribution is equal to:

• 5% of annual compensation of participants
• 10% of annual compensation of participants
• 12% of annual compensation of participants
• 15% of annual compensation of participants
• 25% of annual compensation of participants

Answer 9

E

Question 10

All the following tax considerations may apply to retired employees eXCePt:

• A retired employee is no longer paying a Social Security tax unless he or she is in receipt of earned income.
• Social Security benefits are income tax-free for many individuals.
• Increased standard deductions for federal tax purposes are provided for individuals aged 65 or over.
• Retirement income provided by pension plans is not subject to federal income taxes.
• Retirement income provided by pension plans is not subject to state or local taxes in many jurisdictions.

Answer 10

D

Question 11

Which of the following techniques may be used to establish the relative standing of various retirement plans?

• A comparison of the benefits actually payable to representative employees under different circumstances
• A comparison of actual cost to the employer
• A comparison of the relative values of the different benefits provided, based on uniform actuarial methods and assumptions

None

I only

II only

I and II only

I, II and III

Answer 11

E

Question 12

which of the following is (are) advantage(s) of 401(k) plans?

1. they can be configured with employee contributions only, or with a variety of employee and employer contribution formulas.
2. they can include loan features to allow employees access to plan funds without severe tax consequences from early withdrawals.
3. they allow greater annual maximum contributions for employees of not-for- profit organizations.

I only

I and II only

I and III only

II and III only

I, II and III

Answer 12

B

Question 13

under the deferred wage concept, private pensions are viewed as:

• A. Gratuities or rewards to employees for long and loyal service to an employer
• B. A systematic and socially desirable method of releasing employees who are no longer productive members of an employer’s labor force
• C. Part of a wage package that is composed of cash wages and employee benefits
• D. Annual charges against an employer’s revenue for depreciation of human machines
• E. The fulfillment of a moral obligation on the part of an employer to provide for the economic security of retired workers

Answer 13

C

Question 14

All the following statements correctly describe the manner in which money purchase pension plans are treated by the tax law eXcePt:

• They are subject to the minimum funding requirements of the tax law that apply to defined benefit arrangements.
• They are subject to the joint-and-survivor requirements of the tax law that apply to defined benefit arrangements.
• Individual accounts must be maintained for employees.
• They are subject to the annual addition limits of Section 415 of the Internal Revenue Code.
• They are subject to the plan termination provisions of Title IV of the Employee Retirement Income Security Act (ERISA).

Answer 14

E

Question 15

Which of the following is (are) considered to be qualified employers for section 403(b) plans?

1. A public school system
2. A self-employed person who has no current “qualified” plan
3. An individual not covered by a qualified corporate pension plan

I only

III only

I and II only

II and III only

I, II and III

Answer 15

A

Question 16

Which of the following situations will satisfy the actual deferral percentage (AdP) test for cash or deferred arrangements (CodAs)?

• The average ADP is 2% for the highly compensated employees and 0% for the nonhighly compensated employees.
• The average ADP is 6.5% for the highly compensated employees and 2% for the nonhighly compensated employees.
• The average ADP is 8% for the highly compensated employees and 4% for the nonhighly compensated employees.
• The average ADP is 9.5% for the highly compensated employees and 6% for the nonhighly compensated employees.
• The average ADP is 12.5% for the highly compensated employees and 10% for the nonhighly compensated employees.

Answer 16

E

Question 17

Which of the following statements accurately describe the diversification requirements for defined contribution plans holding publicly traded employer securities?

1. All participants can diversify elective deferrals no sooner than 30 days after these contributions become plan assets.
2. All participants can diversify after-tax employee contributions 15 days sooner than the holding threshold for elective deferrals.
3. All participants can diversify employer contributions immediately.

• None
• II only
• III only
• I and II only
• I and III only

Answer 17

A

Question 18

All the following are reasons for the growth of private pension plans eXcePt:

• A. Desire by business for increased productivity
• B. The favored tax status of “qualified” plans
• C. The demands of labor unions
• D. The sales efforts of funding agencies
• E. The requirements of federal legislation

Answer 18

E

Question 19

Which of the following is (are) (an) income tax advantage(s) of all qualified pension plans?

• i. Within limits, employer contributions are tax-deductible to the employer.
• ii. investment income on plan assets accumulates tax-free until distributed.
• iii. Benefits at retirement are tax-free to a retired employee.

A. I only

B. I and II only

C. I and III only

D. II and III only

E. I, II and III

Answer 19

B

Question 20

Which of the following statements accurately describe(s) the type of contribution formula needed for a profit-sharing plan?

• the plan must include a definite predetermined contribution formula.
• contributions must be based on profits.
• substantial and recurring contributions may be required to meet the need for plan permanency.

I only

III only

I and II only

II and III only

I, II and III

Answer 20

B

Question 21

All the following are essential requirements to achieve the desired tax status under a section 403(b) plan eXCePt:

• The participant must be a bona fide employee.
• The participant’s benefits must be subject to five-year vesting.
• The participant must be employed by a qualified employer.
• The annuity contract must be purchased by a qualified employer or an employer must make a deposit to a custodial account that will purchase mutual fund shares.
• The amount paid in any year must not exceed the applicable federal limits.

Answer 21

B

Question 22

refers to the right of an employee to the benefits attributable to employer contributions under a retirement plan in the event of termination of employment prior to retirement.

Answer 22

vesting

Question 23

the technical requirements for a qualified cash or deferred arrangement (CodA) include all the following eXCePt:

• The CODA must be part of a profit-sharing or stock bonus plan.
• The CODA must allow covered employees to elect to have the employer make contributions to a trust under the plan on behalf of the employees or directly to the employees in cash.
• The CODA must provide that accrued benefits derived from nonelective contributions are nonforfeitable.
• The CODA must provide that accrued benefits derived from elective contributions are nonforfeitable.
• The CODA must subject elective contributions to certain specified withdrawal limitations.

Answer 23

C

Question 24

Advantages of a defined benefit pension plan include which of the following?

• benefits for employees who terminate employment at younger ages can be more costly under defined contribution plans than under defined benefit plans.
• A final pay plan generally transfers preretirement inflation risk to the employer.
• the defined benefit approach allows employees to make contributions on a before-tax basis to the plan.

I only

I and II only

I and III only

II and III only

I, II and III

Answer 24

B

Question 25

When determining “immediate and heavy financial need” for a 401(k) plan participant, which of the following events is (are) acceptable?

1. the purchase (excluding mortgage payments) of a principal residence for the employee
2. Payment of tuition and related educational fees for the next 12 months of postsecondary education for the employee or the employee’s spouse or dependents
3. the need to prevent the eviction of the employee from his or her principal residence, or foreclosure on the mortgage of the employee’s principal residence

I only

I and II only

I and III only

II and III only

I, II and III

Answer 25

E

Question 26

Which of the following are critical factors upon which a successful defined contribution type of retirement system depends?

1. Adequacy of contributions
2. the right array of investment options
3. Financial education for plan participants

I only

II only

III only

I and III only

I, II and III

Answer 26

E

Question 27

the treatment of eligible section 457 governmental plan distributions is subject to all of the following requirements eXcePt:

• Former participants may have any amount made payable to them transferred to another eligible Section 457(b) plan.
• Plan distributions can be rolled over into an individual retirement account.
• Distributions are exempt from the 10% penalty tax on withdrawals made before the age of 591⁄2.
• Eligible Section 457(b) plans are subject to the same beginning date requirements as qualified plans.
• Rollovers into another type of plan must be made within 90 days of distribution.

Answer 27

E

Question 28

Which of the following statements describes the effect stock market corrections have on defined contribution plan holdings?

• Losses from downturns that occur at the commencement of retirement income disbursements are difficult to recoup in future years.
• Losses from downturns that occur at the commencement of retirement income disbursements on the average can be recouped within a five-year period.
• Losses from downturns that occur at the commencement of retirement income disbursements on the average can be recouped within a ten-year period.
• Losses from downturns that occur during the five years before the commencement of retirement disbursements are difficult to recoup.
• Losses from downturns that occur ten years before the commencement of retirement disbursements have no impact on the overall account accumulation.

Answer 28

A

Question 29

income-replacement objectives typically are set with which of the following factors in mind?

• They usually take the spouse’s Social Security benefit into account.
• The objectives usually are higher for the higher paid employees than for the lower paid employees.
• The objectives usually are the same for the higher paid employees as for the lower paid employees.
• The objectives usually are set for the employee’s average pay level during his or her career.
• Full income-replacement objectives typically are set only for individuals who have completed what the employer considers to be a “career” of employment.

Answer 29

E

Question 30

A newly hired employee can make deferrals to an eligible section 457 plan in his or her first month of employment if he or she enters into an agreement authorizing deferrals:

• At least ten days prior to the start of actual employment
• At least three days prior to the start of actual employment
• On or before his or her first day of employment
• Within the first 30 days of employment
• Within the first 60 days of employment

Answer 30

C

Question 31

All of the following are duties of a 401(k) plan directed trustee eXcePt:

• Buying plan assets
• Assuring the accuracy of investment orders
• Eliminating possible investment alternatives from consideration
• Executing sales of plan investments
• Processing investment orders in a timely manner

Answer 31

C