Unit 1: Plan Types

Question 1

Money purchase plans are less popular because: ( 3 reasons)

Answer 1

1.Mandatory employer contributions
2.Restrictive distribution rules
3.Cannot permit employee deferrals

Question 2

Money purchase plans must have a (blank) (blank) formula for its ER annual contributions

Answer 2

A defined contribution formula

Question 3

Distributions from money purchase plans are only allowed for what five events:

Answer 3

1.Retirement
2.Death
3. Disability
4. Termination
5.In-service distribution

Question 4

The allocation formula for money purchase plans may be different from the contribution formula but the total for each must be the same, true or false?

Answer 4

True

Question 5

An employer must pay (blank) if they fail to comply with minimum funding requirements for a money purchase plan?

Answer 5

An excise tax

Question 6

Money purchase plans are not required to comply with joint survivor annuity rules, true or false

Answer 6

False. Distributions must be paid as an annuity unless Participant and spouse consent to an alternative

Question 7

What are two benefits of a money purchase plan?

Answer 7

1.Some employers want the obligation of a contribution so this can be communicated to employees.
2Unions and other employees that negotiate benefits want the certainty of contributions.

Question 8

A profit sharing plan allows for (blank) funding, is a (blank) (blank) plan and many include (blank).

Answer 8

Discretionary funding, defined contribution plan, 401(k)s

Question 9

If the formula for a profit sharing plan is dependent on actual company profits what must occur?

Answer 9

The document must state how these are calculated

Question 10

Deposits and contributions into a profit sharing plan must be what? (2 criteria)

Answer 10

Substantial and recurring.
(But not required each year)

Question 11

What can happen if deposits and contributions to a profit sharing plan are not substantial and recurring?

Answer 11

Accelerated vesting can result

Question 12

The allocation formula for a profit sharing plan does not have to be spelled out in the plan document, true or false?

Answer 12

False. The allocation formula must be identified

Question 13

What are some of the beneficial features of a profit sharing plan? (4)

Answer 13

Discretionary,
flexibility in contributions,
in-service distributions flexibility,
able to add 401(k) deferrals

Question 14

How is a stock bonus plan like a profit sharing plan?

Answer 14

They are very much alike, except under a stock bonus plan the benefits are distributable in employer stock.

Question 15

Stock bonus plans offer the same contribution and allocation formulas as profit sharing plan, true or false?

Answer 15

True

Question 16

Most stock bonus plans provide what type of formula? They may adopt any allocation formula available to what two types of plans?

Answer 16

1 Discretionary contribution formula
2 Profit-sharing plans and money purchase plans

Question 17

Stock bonus plans allow employers to make contributions in what form?

Answer 17

It’s own stock

Question 18

An ESOP plan stands for what?

Answer 18

Employee Stock Ownership plan

Question 19

An ESOP plan May be a (blank blank) plan or a combination of (blank blank) plan and this additional type of plan.

Answer 19

Stock bonus plan or combination of stock bonus plan and money purchase plan

Question 20

An ESOP plan does not need to be designated to invest primarily an employer securities, True or false?

Answer 20

False. They must be designated in order to invest primarily in employer securities

Question 21

Contribution and allocation rules for a ESOP plan follow the same rules as these type of plans (blank)

Answer 21

Profit-sharing plans

Question 22

What are three pros to owners & key EEs by offering a defined benefit plan? (Such as a cash balance plan)

Answer 22

1Large Contributions (significantly greater than defined contribution plans)
2Tax sheltering
3Accumulate Larger Benefits (for owners and key employees)

Question 23

What is a con of defined benefit plans?

Answer 23

Contributions are required even when it’s a bad year for the plan sponsor.

Question 24

What does SEP stand for?

Answer 24

Simplified employer Pension

Question 25

There is always a trust established in an SEP?

Answer 25

False. SEPs do not require trusts.

Question 26

Employers just make contributions directly into (blank) for SEP plans?

Answer 26

IRAs established for employees under the SEP

Question 27

What are the two eligibility requirements for a SEP?

Answer 27

Age 21- maximum limit Service- No minimum but a maximum of three out of five years worked.

Question 28

What are the two formulas available for SEP plans?

Answer 28

Pro Rata Permitted disparity

Question 29

Compensation is capped at what amount for consideration for qualified plans in 2023?

Answer 29

$330,000

Question 30

What’s the minimum salary considered for an SEP plan?

Answer 30

In 2022 in the amount was $650

Question 31

The limit on employer contributions into an SEP plan is what?

Answer 31

The lesser of 25% of employee wages or $61,000

Question 32

How is the 25% of compensation calculated between SEP plans and PSP plans?

Answer 32

SEP plans-25% is based on each Participants wages Profit-sharing plans- 25% is based on an aggregate of Participants.

Question 33

Simple IRA stands for what?

Answer 33

Savings incentive match plan for employees- IRA

Question 34

How many employees can a business have and still offer a simple IRA?

Answer 34

Must have less than 100 employees that earn at least $5000 a year

Question 35

The law allows a (blank blank) grace period If an employer goes over 100 employees in a simple IRA

Answer 35

Two year grace period

Question 36

Employees that were working at any time during the year are considered when determining accompanies eligibility for a simple IRA (100 EE Rule), True or false?

Answer 36

True

Question 37

What are the only two exceptions which allow a company to offer a qualified plan in the same year as a simple IRA?

Answer 37

1A qualified plan for union members 2Transitional relief

Question 38

The simple IRA plan document does what?

Answer 38

Establishes the plan and authorizes contributions

Question 39

The simple IRA document does what?

Answer 39

Establishes the IRA vehicle which receives contributions on an employee’s behalf.

Question 40

What are the Employer contribution methods into a simple IRA?

Answer 40

A 2% NEC 3% match

Question 41

When and how can an employer reduce the match in a simple IRA?

Answer 41

Employer may reduce the 3% match to one percent two out of five years and a Simple IRA

Question 42

What is the compensation limit and how does it apply to employer contributions in a simple IRA?

Answer 42

The Limit of $330,000 for 2023, only applies to the non-elective contribution it does not apply to match.

Question 43

What are the penalties attached to early withdrawal’s in a simple IRA?

Answer 43

There is a 25% excise tax for distribution in the first two years of participation in a Simple IRA if under the age of 591/2 yrs old

Question 44

403B plans are only available to what organizations?

Answer 44

501 C3 organizations

Question 45

Contributions in a 403B can only be made to what 3 investments pathways?

Answer 45

1Annuity contract through an insurance company 2Custodial account invested in mutual funds 3Retirement income account set up for church employees

Question 46

Because 403B’s originally could only be invested in annuity contracts, these plans were often referred to as what?

Answer 46

Tax sheltered annuity plans

Question 47

Because virtually all employees are eligible to participate in a 403B on their date of hire what tests are these plans exempted from?

Answer 47

ADP Coverage testing

Question 48

ERISA plans Have what?

Answer 48

Employer contributions

Question 49

ERISA exempt plans feature what?

Answer 49

Employee deferral’s only Limited involvement from employer