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1

(LO 5-3)

Question 1 of 80

Ted and Margaret Atwood plan to contribute $11,000 to their IRAs for the current tax year. They are both employed and file a joint tax return. Ted is an active participant in his employer's qualified retirement plan, but Margaret is not eligible for her employer's plan. Their AGI for the current tax year is $106,000. What amount, if any, can they deduct for their IRA contributions?

$0

$3,000

$5,500 (Margaret's contribution only)

$8,800

$11,000

$8,800

Since Ted is an "active participant" and their AGI falls within the phaseout range for married joint filers ($98,000–$118,000), their $11,000 IRA contribution will be only partially deductible.

The upper AGI limit of $118,000 minus their AGI of $106,000 equals $12,000. $12,000 ÷ $20,000 = .60.

And .60 × $5,500 (the maximum contribution) = $3,300 for Ted + $5,500 for Margaret's spousal IRA.

2

(LO 9-4)

Question 2 of 80

Which one of the following is not a characteristic of an IRC Section 125 cafeteria plan?

a. The plan offers one or more nontaxable benefits and a cash benefit taxable to the employee.

b. Generally, retirement or deferred compensation benefits may not be included.

c. The plan may include 401(k) (salary reduction) contributions, 401(m) (after-tax) contributions, and employer matching contributions.

d. The plan may provide reimbursements for educational expenses, commuter expenses, and LTC insurance premiums.

e. The plan may provide dental expense reimbursements and child care expense reimbursements.

d. The plan may provide reimbursements for educational expenses, commuter expenses, and LTC insurance premiums.

Cafeteria plans are prohibited from offering reimbursement programs for educational expenses and commuter expenses, as well as for non-cash fringe benefits and employee discounts and LTC insurance.

Retirement plans and deferred compensation plans generally are not allowed, with the exception of 401(k) and 401(m) contributions, which are allowed.

3

Question 3 of 80

What is the significance of an investment in life insurance for an IRA?

a. may be recommended to generate high returns, but cannot represent more than 25% of the total account value

b. may be recommended to generate high returns, but cannot represent more than 50% of the total account value

c. not recommended for an IRA owner over age 50 because the cash value of the policy may not build to a sufficient level by the time of the owner's retirement

d. not recommended because an investment in life insurance may be considered a prohibited transaction, resulting in loss of IRA status for the account

e. not recommended because IRA investment vehicles are required to be liquid

d. not recommended because an investment in life insurance may be considered a prohibited transaction, resulting in loss of IRA status for the account

IRAs are not permitted to invest in life insurance or loans; such an investment is generally a prohibited transaction and would result in the account losing its IRA status. (LO 5-2)

4

Question 6 of 80

All of the following correctly describe a concept related to non-qualified deferred compensation or stock plans except

a. Unlike ISOs, ESPPs can be offered at a discount.

b. If an employee makes a Section 83 election upon the grant of restricted stock, they will not be taxed when the restricted stock becomes vested.

c. A disqualifying disposition with an ISO will result in ordinary income taxes, as well as FICA and FUTA taxes.

d. Non-qualified stock options are taxed upon exercise, regardless of whether the stock is sold or not.

c. A disqualifying disposition with an ISO will result in ordinary income taxes, as well as FICA and FUTA taxes.

Incentive stock options, when there is a disqualifying disposition, are subject to ordinary income taxes, but they are not subject to FICA (payroll taxes) or FUTA taxes.

(LO 7-7, 8-5, 8-6)

5

(LO 2-8)

Question 7 of 80

The following information relates to Elizabeth Chen and her business, Chen Cards Ltd.

Elizabeth, age 48, started her company 15 years ago and does not plan to retire until age 70.

The other Chen Cards Ltd. employees range in age from 45 to 63 and have from one year to eight years of service.

Elizabeth would like to install a qualified plan that would both favor her and reward long-term employees before they retire.

Which one of the following is an advantage to Elizabeth of installing a defined benefit plan with a unit-benefit formula?

a. It could maximize Elizabeth's benefits and give employees incentive to work harder as units of profit are allocated to their accounts.

b. It could use a higher integration level than other plan types to maximize the owner's benefits.

c. It could reward older employees hired in their 50s or 60s and nearer to retirement.

d. It will provide the largest contribution to Elizabeth's account since she has the most years of service.

e. It could both maximize Elizabeth's benefits and reward long-term employees because benefits are based in part on length of service.

e. It could both maximize Elizabeth's benefits and reward long-term employees because benefits are based in part on length of service.

A unit-benefit formula in a defined benefit pension plan will favor employees who have accrued many years of service with the company—in this case, primarily Elizabeth and the long-term employees she would like to reward. Note that d. is incorrect because there are employees who are older than Elizabeth and who may, depending upon other factors, require higher funding amounts to support their retirement benefits than are required to support Elizabeth's benefit.

6

(LO 9-7)

Question 8 of 80

Which one of the following describes a basic provision of a Health Savings Account (HSA)?

a. Employers may not make contributions into an HSA for the benefit of employees.

b. A participant may make a pre-tax contribution to an HSA under a cafeteria plan, and take a current-year tax deduction for those contributions.

c. To qualify for an HSA, an individual must have health insurance coverage under a high-deductible plan.

d. Annual contributions to an HSA are limited to 100% of the annual health coverage out-of-pocket amount.

c. To qualify for an HSA, an individual must have health insurance coverage under a high-deductible plan.

HSA eligibility hinges, in part, on participating in a high-deductible health plan.

An individual who is covered (as an individual, spouse, or dependent) under another health insurance plan that is not a high-deductible plan will not normally be considered eligible for an HSA.

An employer can make contributions to an employee's HSA.

If an HSA is included in a cafeteria plan, the employee cannot take a tax deduction for any pre-tax contributions.

Contributions to an HSA are limited to an indexed amount each year.

Contribution limits are not equal to the annual out-of-pocket amount.

7

(LO 5-2)

Question 9 of 80

Al and Susan Graham, both age 42, are married and file a joint income tax return. Al earned $153 this year, and Susan earned $50,000. Susan is an active participant in an employer-sponsored qualified plan. Susan contributed $1,500 to her IRA for this year.

How much, if any, can be deducted for a maximum contribution to a spousal IRA for Al?

$0

$153

$200

$5,500

$6,500

$5,500

The maximum deductible contribution for a spousal IRA for Al is $5,500.

8

(LO 5-2)

Question 10 of 80

Stewart and Abby Delfause, both age 35, plan to contribute a total of $11,000 to their IRAs for this tax year. They both work outside the home, and they file a joint income tax return. Stewart is a teacher at the local high school and participates in a 403(b) plan. Abby's employer does not provide a retirement plan. They expect that their adjusted gross earnings for the year will be $120,000.

What amount, if any, can they deduct for their IRA contributions?

$0

$2,900

$5,500

$6,500

$11,000

$5,500

An individual is not denied a deduction for his or her IRA contribution simply because of the other spouse's active participation, unless the couple's combined AGI exceeds $184,000 (2016).

Based on their AGI, Abby will be able to deduct a contribution of up to $5,500 to an IRA.

Since their combined AGI is too high for Stewart to make a deductible IRA contribution, he should consider contributing to a Roth IRA.

9

(LO 5-7)

Question 11 of 80

Which one of the following requirements is a possible disadvantage of a simplified employee pension (SEP) for an employer?

a. The SEP's trustee is subject to ERISA's prohibited transaction excise tax penalties.

b. A SEP must have a fixed contribution formula that is nondiscriminatory.

c. The vesting requirements for a SEP prohibit forfeitures.

d. Employer contributions to a SEP are subject to payroll taxes.

c. The vesting requirements for a SEP prohibit forfeitures.

SEP contributions must be 100% vested (i.e., nonforfeitable at all times). SEPs consist of individual IRAs; there is no trustee for a SEP plan.

The contribution formula of a SEP is not required to be fixed.

Employer contributions to a SEP are not subject to payroll taxes.

10

(LO 9-3)

Question 12 of 80

Which one of the following is not a correct statement regarding the tax implications of group permanent life insurance coverage?

a. The employer can deduct the premiums if the employee's right to the insurance is non-forfeitable when paid.

b. The employee is subject to taxation on premiums paid by the employer if the employee designated the beneficiary.

c. The employee can reduce the taxable amount by the amount of employee-paid premiums.

d. The employee is subject to taxation only on premiums paid by the employer for coverage exceeding $50,000.

e. The employer cannot deduct the premiums if the employer is the beneficiary.

d. The employee is subject to taxation only on premiums paid by the employer for coverage exceeding $50,000.

The employee's exemption for the employer's cost of the first $50,000 of group life insurance coverage applies only to group term life insurance, not to group permanent life insurance.

To be allowed to deduct employer-paid premiums, the employer must not be the beneficiary of the policy and the employees must have non-forfeitable rights to the insurance.

The employee who designates the beneficiary of the permanent policy is taxed on the employer-paid premiums, less any premiums paid by the employee.

11

(LO 1-6)

Question 13 of 80

Glenn Hightower opened his architectural consulting firm 40 years ago at age 26. After working as a sole proprietor for his entire career, Glenn sold his firm to a professional corporation and retired this year. He will receive five annual payments of $50,000 each from the sale of the business. His Social Security full retirement age is 66.

Is Glenn eligible for Social Security retirement benefits this year, and why or why not?

a. yes, because he operated his firm as a sole proprietorship and not as a professional corporation

b. no, because architecture is a profession and therefore is not covered by the Social Security retirement program

c. yes, because he is a fully insured professional and meets the age requirement to receive retirement payments

d. no, because he sold his firm to a professional corporation and will get too much income from the sale to receive Social Security payments

e. no, because consulting businesses are not covered by the Social Security retirement program

c. yes, because he is a fully insured professional and meets the age requirement to receive retirement payments

Self-employed sole proprietors are covered under Social Security; the installment sale payments are not earned income, so they would not affect Glenn's Social Security benefits.

12

Question 14 of 80

All of the following are characteristics of an owner/employee's participation in a Keogh plan except which one of the following?

a. the employer contribution to the owner/employee's account is based on net earnings (with required modifications) rather than on compensation

b. lump-sum distribution treatment is not available to an owner/employee who is under age 59½ and separates from service

c. the owner/employee may not borrow funds from the plan because of qualified plan loan rules

d. lump-sum distribution treatment may be available to the owner/employee if the distribution is due to the owner/employee's death or disability

e. lump-sum distribution treatment may be available to the owner/employee if the distribution is due to the owner/employee's attaining age 591⁄2

c. the owner/employee may not borrow funds from the plan because of qualified plan loan rules

Common-law employees, an owner/employee in a sole proprietorship, a partner in a partnership, or a shareholder/employee in an S corporation may borrow from their plan accounts, in accordance with plan provisions.

13

(LO 3-3)

Question 15 of 80

The following information relates to Bill Mitchell, a senior geologist with Major Mines, a large corporation.

Bill, age 57, is paid $75,000 annually as a senior geologist.

The 48-year-old controlling shareholder of Major Mines recently has become company president in an attempt to reduce the high turnover rate and to increase the profitability of company operations.

A target benefit plan has just been installed. It was designed to provide the maximum contribution for the 48-year-old president.

Which one of the following is a disadvantage to Bill Mitchell regarding the target benefit plan?

a. Bill does not know the amount of annual retirement benefit to expect.

b. Bill's salary reduction contributions to the plan are not available for plan loans.

c. Employer contributions are limited to 15% of covered payroll.

d. Contribution flexibility allows the employer to lower its contribution if profits go down.

e. Bill will receive a reduced benefit if he retires at age 65 because he will not have 10 years of plan participation at that time.

a. Bill does not know the amount of annual retirement benefit to expect.

A target benefit plan would be advantageous to Bill because it would skew contribution allocations in his (and other older employees') favor.

The uncertainty of the amount of retirement benefit, however, is a disadvantage to Bill (and to other participants).

Target benefit plans do not allow 401(k) elective deferrals, and employer contributions are limited to 25%—not 15%—of covered payroll.

14

(LO 6-6)

Question 16 of 80

A parent-subsidiary group exists if the parent owns what percentage of the voting stock in another corporation?

a. at least 50%

b. more than 50%

c. at least 80%

d. more than 80%

c. at least 80%

A parent-subsidiary group exists if the parent owns at least 80% of the stock in another corporation.

15

(LO 3-3, 3-7, 7-7)

Question 17 of 80

Which one of the following types of plan formulas should be considered by a relatively new business with a fluctuating cash flow and key employees who are significantly older than the rank-and-file employees?

a. cash balance

b. service based

c. target benefit

d. age weighted

d. age weighted

An age-weighted formula can be used by a profit sharing plan.

This arrangement will work best for a business with a fluctuating cash flow and key employees who are older than the other employees.

Pension plans (i.e., cash balance plans and target plans) are subject to minimum funding requirements and may create a problem for a business with a fluctuating cash flow, even though they will maximize contributions for older employees.

A service-based formula will favor employees who have many years of service with the business.

16

(LO 7-2)

Question 18 of 80

Use the information below about Ted Ridge to answer the question that follows.

Ted is age 54 and married. He and his wife, Beth, have a college-age daughter named Meredith. Ted has been making salary reduction contributions to his employer-sponsored 401(k) plan for the last four years. Ted is considered a highly compensated employee.
The current 401(k) account balance (nonforfeitable accrued benefit) is $21,500. This total includes account earnings of $3,500. The plan allows for both hardship withdrawals and plan loans. Plan loans are available to all plan participants on an equal basis. Meredith is just starting college, and Ted needs to use some of his plan assets to pay college tuition.

Which one of the following is a correct statement about how Ted could meet Meredith's college expenses?

a. The maximum plan loan Ted could take is $10,750.

b. Ted could withdraw the full $21,500 from his 401(k) account if he made a withdrawal under the hardship provisions.

c. Ted is not allowed to take a loan from the plan since he is a highly compensated employee.

d. Ted would not have to pay a premature distribution penalty tax if he made the maximum hardship withdrawal.

e. Ted could not withdraw funds under the hardship provisions because his need does not meet the "immediate and heavy financial need" criterion.

a. The maximum plan loan Ted could take is $10,750.

The maximum loan amount is the lesser of $50,000 or one-half of the nonforfeitable accrued benefit of $21,500—i.e., $10,750.

Answer b. is wrong because plan earnings are not available for hardship withdrawal; thus, only $18,000 is available (i.e., $21,500 less $3,500).

Answer c. is incorrect because as long as loans are available to all employees on an equal basis, highly compensated employees may take loans.

Answer d. is wrong because hardship withdrawals from 401(k) plans are subject to the 10% premature distribution tax.

Answer e. is wrong because Ted will use the funds for college tuition, and such a purpose is "an immediate and heavy financial need."

17

(LO 5-6)

Question 19 of 80

Which one of the following describes a basic provision of a SIMPLE IRA?

a. Only employers that average fewer than 20 employees can establish a SIMPLE IRA.

b. An employer may add a SIMPLE IRA plan to an existing defined benefit plan to allow employees to make elective deferrals.

c. SIMPLE IRA plans can be arranged to allow for in-service loans for up to 50% of the account balance, but not to exceed $50,000.

d. A SIMPLE IRA must satisfy both the ADP and ACP nondiscrimination tests.

e. One contribution formula an employer can use under a SIMPLE IRA is to make a 2% non-elective contribution on behalf of each eligible employee with at least $5,000 in current compensation.

e. One contribution formula an employer can use under a SIMPLE IRA is to make a 2% non-elective contribution on behalf of each eligible employee with at least $5,000 in current compensation.

SIMPLE IRA plans are available to employers with 100 or fewer employees and with no other qualified retirement plan.

The employer contribution requirement may be satisfied by either a 3% matching contribution formula or a 2% non-elective contribution for each employee with current-year compensation of $5,000 or more.

18

(LO 2-1, 2-2)

Question 20 of 80

Which one of the following describes a basic provision of qualified retirement plan contribution or benefit calculations?

a. A career-pay provision generally results in a plan benefit that reflects the impact of inflation.

b. A final-pay provision generally results in a higher benefit for the employee.

c. The plan must define its normal retirement age as the Social Security retirement age.

d. Compensation is limited to $210,000 in 2016, an amount that is indexed.

b. A final-pay provision generally results in a higher benefit for the employee.

A defined benefit plan can base the retirement benefit on the employee's average pay over the employee's career or over the final three or five years.

The final-pay provision is generally a higher amount, reflecting the impact of inflation in recent years. The plan's normal retirement age is not necessarily the Social Security retirement age.

The compensation limit is indexed, and is $265,000 in 2016.

19

(LO 8-2)

Question 21 of 80

Larry Patton, age 55, is an employee of the Binder Box Co. Larry began work for Binder in 2009 as an executive in charge of the production department. As part of Larry's employment contract, Binder contributes to a separate account for Larry's benefit an amount equaling 10% of his salary each year. The terms of this non-qualified plan state that the contribution of these amounts will cease and Larry will have no rights to the income if he fails to complete 10 years of substantial service with Binder Box Co. Otherwise, Larry is entitled to receive the deferred cash amounts upon completing 10 years of substantial service with his employer. This non-qualified deferred compensation plan segregates property for the benefit of Larry.

Which one of the following is an income tax implication of this plan for Larry, and why?

a. The employer contributions to the plan are tax-exempt for Larry because they were made after August 1, 1969.

b. The employer contributions to the plan are not currently taxable to Larry because they are subject to a substantial risk of forfeiture.

c. The employer contributions to the plan are tax-exempt for Larry because they are less than 25% of salary.

d. The employer contributions to the plan are taxable to Larry currently because a separate account was established for his benefit.

e. The employer contributions to the plan are tax-exempt for Larry because his receipt of payments from the plan is contingent upon his continued employment with Binder Box Co.

b. The employer contributions to the plan are not currently taxable to Larry because they are subject to a substantial risk of forfeiture.

The plan has established substantial risk of forfeiture conditions—Larry will receive the deferred amounts when he completes 10 years of substantial service with his employer.

Choice d is incorrect because separate accounts can be created for each employee as long as those accounts are held as a general asset of the employer subject to the claims of creditors.

20

(LO 2-3)

Question 22 of 80

Worthy Tools Inc. is designing a money purchase pension plan for eligible employees. The following information relates to Worthy Tools Inc.:

The seven key employees, all with more than eight years of service, will be eligible for the plan.
Of the 24 full-time rank-and-file employees, ranging in age from 19 to 61 years old, 22 will be eligible for the plan.

Turnover is high; the rank-and-file employees' average tenure is 20 months. Although occasionally a non-key employee stays at the company for over two years, none has ever completed more than 2.5 years of service.

The key employees' compensation totals $650,000; the plan's covered payroll will total $1 million.
The company is installing the plan primarily to provide for its officers' retirement benefits and is not particularly concerned about employee turnover or about providing retirement benefits for employees. In fact, the company would prefer to minimize the benefits available to rank-and-file employees.

Based on the information about Worthy Tools, which one of the following vesting schedules would be appropriate for the company pension plan?

3-year cliff

5-year cliff

2- to 6-year graded

3- to 7-year graded

3-year cliff

The plan will be top-heavy since the pay of key employees is 65% of the total pay of all plan participants.

(Employer contributions to a money purchase plan are allocated to participants' accounts based on relative pay.)

The maximum vesting schedules available to a defined contribution plan are 3-year cliff and 2- to 6-year graded; 3-year cliff would be the best choice for minimizing benefits to rank-and-file employees, who have historically stayed a maximum of two years with the company.

21

(LO 1-5)

Question 23 of 80

Which one of the following is a correct statement about the amount of Social Security retirement benefits available when a fully insured worker's retirement benefit begins at "full retirement age" (FRA)?

a. The worker will receive 80% of his or her primary insurance amount (PIA).

b. A 63-year-old spouse of the retired worker will receive 50% of the worker's PIA.

c. At full retirement age, the worker's spouse will receive 50% of the worker's PIA.

d. If the full retirement age (FRA) spouse also is entitled to benefits on his or her earning record, the benefit is the lesser of 100% of the spouse's own PIA or 50% of the worker's PIA.

c. At full retirement age, the worker's spouse will receive 50% of the worker's PIA.

The spouse, at his or her full retirement age, will receive 50% of the worker's PIA unless the spouse's Social Security benefit is higher based on his or her own earnings.

Answer a. is wrong because at full retirement age the worker will receive 100% of her PIA. The worker who retires at age 62 would receive 80% (less 5/12 of 1% for each month in excess of 36 months prior to FRA) of PIA.

Answer b. is incorrect because the spousal benefit would be less than 50%. The 50% of PIA is reduced by 25/36 of 1% for each of the first 36 months (plus 5/12 of 1% for each month in excess of 36 months prior to FRA) the spouse is under full retirement age (FRA) when benefits begin.

Answer d. is wrong because the spouse would receive the higher of 100% of his PIA or 50% of her PIA.

22

(LO 1-8)

Question 24 of 80

Which one of the following is a gap in Medicare's Part A coverage that a patient must pay?

a. costs for a hospital stay beyond 150 days

b. the annual deductible for doctor's services

c. all costs above the hospital deductible for a 30-day stay in a hospital

d. the approved costs of care in a skilled nursing facility for the first 10 days

a. 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 co-payment) or the need for custodial care.

23

(LO 1-8)

Question 25 of 80

Which one of the following individuals will be eligible for Medicare coverage?

a 68-year-old farmer

a 55-year-old corporate director, in the capacity of director

a 62-year-old federal government employee who was hired in 1987

a 65-year-old business owner who has always received only dividend income from the business

a. 68-year-old farmer

The farmer is in a covered occupation and is over age 65.

Thus, he or she would receive benefits if fully insured.

Answer b. is incorrect because although this individual is in a covered occupation for Social Security purposes, he or she must be age 65 to be eligible for Medicare benefits.

Answer c. is wrong because although this person is employed in a covered occupation, he or she must be age 65.

Answer d. is wrong because although this person is age 65, he or she is not in a covered occupation for Social Security purposes.

24

Question 26 of 80

Harvey Winkler is age 52 and has been employed as an administrator for the MidWest Consortium on the Arts for 27 years. His salary this year is $120,000. He is concerned about his ability to retire in 13 years and wants to begin participating in the tax-sheltered annuity (TSA) plan offered by his employer.

Which of the following statements apply to Harvey's contributions to the TSA?

I. Harvey can contribute up to $18,000 this year, plus any catch-ups for which he may be eligible.

II. Harvey can contribute an additional $6,000 this year under the age 50 catch-up.

III. Harvey cannot take advantage of the catch-up provision available to employees with 15 years of service.

IV. Harvey can take advantage of the long service catch-up provision that allows the participant to increase the salary deferral limit by up to $3,000 per year.

I and II only

I and IV only

II and III only

I, II, and III only

I, II, and IV only

I, II, and III only

In 2016, the $18,000 salary reduction limit will apply plus the age 50 catch-up, making the total $24,000.

Harvey is not an employee of a health, education, or church organization, and therefore is not eligible for the long service catch-up.

He therefore cannot use the catch-up that allows an increase to the deferral limit.

Since Harvey is 52, the $6,000 age 50 catch-up allows him to increase his total deferral to $24,000.

25

(LO 2-5)

Question 27 of 80

Which one of the following statements correctly describes the effects of actuarial methods or assumptions on contributions to a defined benefit pension plan?

a. The higher the interest rate assumed by the actuary, the higher the required employer contribution for the year.

b. The higher the projected investment earnings on plan assets over the life of the plan, the lower the required employer contribution for the year.

c. The higher the turnover rate assumed by the actuary, the lower the required employer contribution for the year.

d. Using salary scales tends to reduce the cost for funding younger employees' benefits.

c. The higher the turnover rate assumed by the actuary, the lower the required employer contribution for the year.

Because defined benefit plans must apply forfeitures to reduce the employer contribution, an actuarial assumption of high turnover in a plan year will result in a lower required employer contribution.

26

(LO 3-10)

Question 28 of 80

Which one of the following statements correctly describes the integration of a 5% money purchase plan?

a. The permitted disparity is 5.7%.

b. The maximum excess contribution percentage is 10%.

c. The maximum excess contribution percentage is 15.7%.

d. The offset integration method may be used.

b. The maximum excess contribution percentage is 10%.

A money purchase plan with a base contribution percentage of 5% will have a 5% permitted disparity (lesser of the 5% base or 5.7%); therefore, the excess contribution percentage will be 10% (5% base + 5% permitted disparity).

27

(LO 3-1, 7-7)

Question 29 of 80

Which of the following statements is not correct regarding the various limits that apply to retirement plans?

a. The maximum annual employee deferral amount for 401(k) plans, 403(b) plans, and Section 457 plans is $18,000 in 2016.

b. The maximum annual employee deferral amount for SIMPLE plans is $12,500 in 2016.

c. The age 50 catch-up available for 401(k) plans, 403(b) plans, Section 457 plans, and SARSEP plans is $6,000 in 2016.

d. The maximum amount that is allowed to be contributed to a defined contribution plan in 2016, counting both employee and employer contributions, is $53,000 or 100% of compensation, whichever is greater.

d. The maximum amount that is allowed to be contributed to a defined contribution plan in 2016, counting both employee and employer contributions, is $53,000 or 100% of compensation, whichever is greater.

The Section 415 maximum contribution amount in 2016 is $53,000 or 100% of compensation, whichever is less.

28

(LO 9-10)

Question 30 of 80

Which one of the following statements is a basic principle underlying the workers' compensation laws?

a. Indemnity is temporary, not final.

b. A lump-sum payment is available at the recipient's request.

c. The employer's purchase of workers' compensation insurance is optional, as specified under state law.

d. Liability may not be determined by negligence.

d. Liability may not be determined by negligence.

The employer has absolute liability for employee injuries, regardless of who may have been negligent.

29

(LO 5-7)

Question 31 of 80

Which of the following are characteristics that simplified employee pensions (SEPs) share with qualified profit sharing plans?

I. limitation on employer contributions
II. application of controlled group rules
III. nondiscrimination requirements
IV. statutory eligibility requirements (age 21, one year of service)

I and II only

II and IV only

I, II, and III only

I, III, and IV only

II, III, and IV only

I, II, and III only

SEPs and profit sharing plans are both subject to the 25% limit on deductible employer contributions, the controlled group rules, and nondiscrimination requirements.

Eligibility requirements are different for a SEP.

30

(LO 4-7, 7-2)

Question 32 of 80

Which of the statements below describe one or more characteristics of hardship withdrawals from Section 401(k) plans?

I. Hardship withdrawals may be taken from elective deferral amounts and the investment income from such deferrals.

II. The participant must demonstrate "immediate and heavy financial need" and not have any other resources that are "reasonably available."

III. A hardship withdrawal is exempt from the 10% early withdrawal penalty if the participant is below age 59½.

IV. Hardship conditions must be established for hardship withdrawals from profit sharing or stock bonus 401(k) plans.

I only

I and II only

II and III only

II and IV only

II, III, and IV only

II and IV only

Hardship withdrawals from profit sharing or stock bonus Section 401(k) plans require that hardship conditions ("immediate and heavy financial need" and other resources not "reasonably available") be demonstrated. Only elective deferral amounts—not the associated earnings—are available for hardship withdrawals.