RPA 1 - Final Exam 100 Questions with correct Answers 2024-2025., Exams of Community Corrections

Download RPA 1 - Final Exam 100 Questions with correct Answers 2024-2025. and more Exams Community Corrections in PDF only on Docsity! RPA 1 - Final Exa m 100 Questions with correct Answers 2024-2025. Top-hat plan - Correct Answer a retirement plan that is unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a "select group of management or highly compensated employees" is called a (n): Economic Benefit - Correct Answer a theory of income taxation that imposes current tax liability on taxpayers who receive something of reasonable value is known as the doctrine of: Must be given the election to remain under the pre-amendment vesting schedule for both pre-and post-amendment benefit accruals. - Correct Answer An employee with four years of service participates in a retirement plan. The vesting schedule in this plan is changed by plan amendment. Under tax law, this plan participant: An example of a sponsor of a 403(b) plan is - Correct Answer public college Contributions to a profit sharing plan must be made on - Correct Answer A substantial and reoccurring basis Employees withdrawing contributions from a savings incentive match plan for employees (SIMPLE plan) individual retirement account (IRA) during the two-year period beginning on the date of initial participation are subject to a penalty tax of - Correct Answer 25 percent Federal law defines normal retirement age to be the age specified in the plan, but it cannot occur beyond the later of - Correct Answer Age 65 or the fifth anniversary of the participant's date of initial participation For a distribution from a Roth IRA account to receive favorable tax treatment as a qualified distribution, how long must contributions be in the account? - Correct Answer 5 years For all defined contribution plans, there is a uniform employer deduction limit of - Correct Answer 25% of compensation How the Pension Protection Act of 2006 change requirements for investment advice did provided to individual retirement account (IRA) owners? - Correct Answer the Act requires that fees for such advice not be contingent on the investment option chosen. If a contribution to a profit sharing plan exceeds the maximum deductible contribution limit, the employer can carryover the excess contribution to the succeeding year, but will be subject to an excise tax on the excess contribution of: - Correct Answer 10 percent If you knew that a vendor servicing a 401(k) plan was clearing trades internally and not using an outside directed trustee, you generally could conclude that: - Correct Answer The vendor was providing plan services as a bundled service provider. In 1948 the National Labor Relations Board (NLRB) found that the provisions of retirement plans affect conditions of employment and that retirement benefits constitute: - Correct Answer Wages In addition to current income taxation, any excess contribution to an individual retirement account (IRA) is subject to a nondeductible excise tax of: - Correct Answer 6 percent in general, the aggregate amount of employer contribution allocated to a younger employee under a defined contribution plan compared to that under a defined benefit plan is: - Correct Answer A higher amount Key employees, for purposes of the top-heavy rules, include all: - Correct Answer One percent owners receiving annual compensation in excess of $150,000 Of all of the following factors in the Black-Scholes option pricing model, which one is generally deemed to have the most relative impact on the value of the option? - Correct Answer The expected volatility of the underlying stock's market price The annual limit on deferral amounts for an ineligible Section 457 plan is - Correct Answer Unlimited The limitation on exclusions for elective deferrals under 401(k) plans is: - Correct Answer Indexed in increments established by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) The most frequently used criterion to establish participation in a supplemental executive retirement plan (SERP) is: - Correct Answer Position and management status The Supreme Court ruled in Arizona Governing Committee v. Norris that: - Correct Answer Life annuities under an employer-sponsored defined contribution plan must be provided on a uniform basis The vesting provision of executive retirement arrangements: - Correct Answer Varies depending on the intent of the executive arrangement Those questioning the validity of the human depreciation concept of private pensions would argue that the employer should be held responsible only for the increase in the rate of aging caused by: - Correct Answer Occupational hazards To receive tax-preferred treatment under an ineligible Section 457 plan, amounts deferred must be - Correct Answer Subject to a substantial risk of forfeiture Under which of the following circumstances would it be prudent for an individual receiving restrictive stock to make the selection to pay taxes owed in the year the stock is received rather than in the year it is vested? - If the current value of the stock is low and there is an expectation of reasonable growth in the value of the stock. - If the individual expects to remain with the employer at least through the current tax year. - If the employer is expected to make the vesting provisions more restrictive. - Correct Answer 1 Which of the following 401(k) plan features are core elements of design likely to determine plan success? - Whether an employer will provide a plan contribution - The level of the employer contribution - The menu of investment options offered through the plan - Correct Answer 1, 2, & 3 Which of the following are factors that should be considered in defining compensation for executive retirement arrangements? - The elements of pay to be included. - The look-back period over which compensation will be indexed for inflation protection. - The period of time (if any) over which compensation will be averaged - Correct Answer 1 & 3 Which of the following employers could permit a loan from a Section 457 plan? - An organization exempt from tax under Internal Revenue Code (IRC) Section 501 - A corporation - A state government - Correct Answer 3 Which of the following Internal Revenue Code Sections' provisions control no statutory employee stock compensation plans? - Section 61 - Section 72(p) - Section 83 - Correct Answer 1 & 3 Which of the following is (are) a disadvantage of a solo 401(k) plan? - Elective deferral limits under these plans were severely reduced by the Economic Growth and Tax Relief Reconciliation Act. - The plan is required to comply with most of the administrative requirements of non- solo 401(k) plans. - The plan can only be offered to the owner and his or her spouse and not to other employees. - Correct Answer 2 Which of the following is (are) advantage(s) of a defined benefit plan? - It can be structured to achieve specific income replacement objectives. - When compared to a defined contribution plan, it can be more efficient at allocating available funds primarily for retirement benefits. - When compared to a defined contribution plan, it can be designed to achieve a more equitable allocation of employer contributions taking into account an employee's age, past service, and pay. - Correct Answer 1, 2, & 3 Which of the following is (are) advantage(s) of a defined contribution plan? - Its administrative costs are typically less than those of a defined benefit plan. - Its design can achieve greater employee identification with the company than that of a defined benefit plan. - Its design has the potential to enhance employee productivity. - Correct Answer 1, 2, 3 Which of the following is (are) characteristics of Section 423 employee stock purchase plans? - They can favor highly paid executives. - Their purchase price must equal the stock's fair market value when the option is granted or when the option is exercised. - Employees who agree to have an estimated amount withheld from their pay to provide the funds with which to exercise their options at the end of an option period can decide not to exercise the option and have the amounts withheld refunded to them. - Correct Answer 3 Which of the following is (are) correct statements about Social Security "integration"? - It is a form of discrimination unintentionally allowable by the Internal Revenue Code. - It recognizes that the relative value of Social Security benefits decreases as pay goes up. - It refers to a plan design (when using a defined contribution plan) that provides a higher level of employer contributions for employee earnings above a specified amount than for those earnings below the specified amount. - Correct Answer 2 & 3 Which of the following is (are) correct statements regarding the tax treatment of incentive stock options (ISOs) for the specified party? - The bargain element upon exercise of an ISO is an adjustment item for individual alternative minimum tax (AMT) purposes. - The participant of an ISO plan is taxed only when he or she sells the stock purchased under the plan. - The employer gets a corporate tax deduction at the granting of the option. - Correct Answer 1 & 2 Which of the following legal entities can establish a Keogh plan? - A sole proprietor - A partnership - A common-law employee - Correct Answer 1 & 2 Which of the following participants would be prohibited from receiving a plan loan from a Keogh plan? - A sole proprietor - A partner owning 12% of the profit interest in a partnership - A shareholder-employee of an S corporation - Correct Answer None Which of the following provisions is (are) required to be provided in qualified retirement plans under federal law? - A provision offering an early retirement benefit before normal retirement age. - A provision allowing an employee to defer retirement beyond normal retirement age. - A provision insuring an income replacement ratio from the plan which is equivalent on an aggregate basis for highly compensated and no highly compensated employees. - Correct Answer 2 Which of the following requirements would apply to a loan from a qualified profit sharing plan that is not being used to acquire a principal residence? - The loan must be repaid within ten years. - The loan must be amortized in a substantially level manner. - The loan must require payments that are made at least monthly. - Correct Answer 2 Which of the following rules apply to qualified nonselective contributions under a 401(k) plan? - The contribution must be fully vested at all times. - The contribution must be made available to the employee through a loan provision. = The contribution consists of money an employee is deemed to have received and taken as income - Correct Answer 1 Which of the following services generally would be provided by a directed trustee to a 401(k) plan under an unbundled service arrangement when the directed trustee is not performing recordkeeping services for a 401(k) plan? - Tracking incoming plan contributions and the allocation of funds among specific individual participant accounts. - Approving individual participant loan and hardship requests. - Rural electric cooperative plan - Profit sharing plan Characteristics of profit-sharing plans - Correct Answer - They can be structured with either a discretionary formula or a predetermined formula for employer contributions - They can allow employee contributions - The can be used with a 401k provision - Their employer contributions can reach 25% of employee compensation All of the following are characteristics of savings incentive match plans for employees (SIMPLE plans) - Correct Answer - The may be established as either IRAs or 401ks - Employers may make matching contributions to SIMPLE plans - Employers may make nonselective contributions to SIMPLE plans - They may be established by employed with 100 or fewer employees with a specified minimum level of compensation All of the following are decision elements in the initial design and ongoing administration of a 401(k) plan - Correct Answer Ways in which plan sponsors... - design the plan - handle continuing administrative tasks - communicate plan offerings and features - Ways in which plan sponsor will serve as a discretionary trustee All of the following are key provisions enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 - Correct Answer - Increased contribution, benefit deduction limits for all types of retirement savings vehicles - created qualified Roth contribution programs - Increased contribution limit amounts for retirement plan participants aged 50 and older- Eased rules for rollover distributions among various types of plans One reason major administrative issues of savings incentive match plans for employees (SIMPLE plans) - Correct Answer They are not required to perform nondiscrimination testing where employer matching contributions are involved Requirements for a statutory stock comp plan to qualify as an incentive stock plan (ISO) - Correct Answer - duration of an option cannot exceed ten years - Option price must equal or exceed the value of the stock when the option was granted - An employee cannot dispose of the stock within two years from the granting of the option or within one year of the transfer of the stock to him or her - Option must be nontransferable except by will or inheritance at death Events that permit qualified distributions (of limited amounts in some cases) from a Roth IRA that has held contributions for a specified minimum period - Correct Answer - taxpayer has attained age 59 1/2 - Taxpayer is disabled -taxpayer has died and payment is made to a beneficiary or to the individual's estate - Taxpayer has first-time home buyer expenses Changes enacted by the PPA 2006 with important implications for 401k are - Correct Answer amended the ERISA to explicitly preempt any state wage and hour law that may prohibit or restrict auto enrollment - extended conditions that would allow hardship distributions - imposed stricter diversification requirements to plans of public traded companies that hold publicly traded securities - Act made changes in the notice and consent rules applicable when plan distributions occur IRAS and other similar savings plans - Correct Answer - generally IRA assets cannot be invested in life insurance contracts - An individual retirement savings plan can be established with the purchase of an annuity contract - Self-directed IRA arrangement is permissible - IRA investments in collectibles such as antiques, works of art, stamps and coins are prohibited Characteristics of a money purchase plan - Correct Answer - ability of participants to make investment decisions regarding their accounts - Lump sum distribution in the event of the employee's death - In-service withdrawals not permitted - Loans available form the plan Requirements to achieve tax advantages for 403b - Correct Answer - the contributions paid in any year must not exceed the limits under Section 415, the annual limit on salary reduction contributions, or the maximum amount permitted under the nondiscrimination requirements. - The participant's rights under the contract must be no forfeitable. - The annuity contract must be purchased by the employer, or the employer must make a deposit to a custodial account that will purchase mutual fund shares. - For plans involving employer contributions, certain applicable nondiscrimination requirements must be met. Strategies an employer may use to minimize or eliminate the possibility that a plan will fail under the ADP and/or ACP tests - Correct Answer - place a limit on the maximum amounts that may be deferred on contributed by employees - allow the employer to adjust prospective deferrals or after-tax contributions either upward or downward if the plan is in danger of failing to meet the tests. - set plan contributions according to specified safe harbors - Require mandatory minimum deferrals or contributions from all participating employees. Design features in an executive retirement plan typically is consistent with broad-based qualified retirement plans maintained by the plan sponsor - Correct Answer - form and manner in which benefits are distributed - Right to make and change beneficiary designations - Right to amend or terminate plan - State law that will govern plan interpretation Broad categories of defined benefit formulas - Correct Answer - flat amount formulas - Flat amount per year of service formulas - Percentage of earnings per year of service formulas - Flat percentage of earnings formulas Requirements of SIMPLE plan - Correct Answer - plan must be in writing - Plan must specify requirements of EE participation - EE must be fully vested in his or her account balance at all times - Plan loans are not permitted Active-service withdrawals from qualified profit sharing plans - Correct Answer - participants may withdraw a portion of their vested benefit while actively employed - may restrict the right to withdraw to employee contributions - Tax law permits the withdrawal of funds upon the happening of an event such as a hardship - IRS allows withdrawal of funds from a profit sharing plan upon the completion of five years of plan participation Distributions from a traditional IRA - Correct Answer - Excess accumulation in an IRA is subject to an excise tax of 50%. - Lump-sum distributions from an IRA do not qualify for long-term capital gains treatment. - Distributions from an IRA used to pay medical expenses exceeding a stipulated percentage of adjusted gross income are free of the 10% penalty tax on early withdrawals - traditional IRA died before the entire interest is distributed, the required distribution to the beneficiary depends upon whether distributions to the IRA owner had already been required to start by the date he or she died. What can't an employer do to encourage early retirement? - Correct Answer Stop accruing benefits when an employee attains a maximum age limit Employer sponsored IRAs - Correct Answer Can be discriminatory in benefits Variable annuities (equity provisions) are alleged to have what advantages? - Correct Answer - Employees have some assurance that their retirement income will coincide with the general level of economic activity - From the employer's standpoint, the cost of variable annuities can be predicted