Chapter 10
INSTALLING A QUALIFIED PLAN
LEARNING OBJECTIVES:
A. Have a basic understanding of the steps involved when installing a
qualified retirement plan
REVIEW:
This brief chapter covers the steps required to install a qualified retirement plan.
The process of plan adoption is discussed first, followed by mention of credit for
startup costs. The advance determination letter is covered next. Following this,
the chapter closes with coverage of master and prototype plans.
CHAPTER OUTLINE:
A.
B.
C.
D.
E.
Plan Adoption
Credit for Startup Costs
Advance Determination Letter
Master and Prototype Plans
Chapter Endnotes
FEATURED TOPIC:
Steps involved in installing a qualified retirement plan
FIGURES:
Figure 10.1 Plan Installation Checklist and Timetable
1
Chapter 10
CFP® CERTIFICATION EXAMINATION TOPIC: NONE
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Have a basic understanding of the steps involved when installing a
qualified retirement plan
KEY WORDS:
plan adoption, advance determination letter, prototype plan, master plan
DISCUSSION:
1. Discuss the steps involved when installing a qualified plan along with
any difficulties that may be involved.
2. Discuss reasons for using a prototype plan rather than a custom plan.
QUESTIONS:
1. An employer must legally adopt a qualified plan by what date?
a.
b.
c.
d.
as late as the tax filing date for the year
prior to the end of the taxable year in which the plan is to be effective
up to one quarter after the end of the employer’s taxable year
up to two quarters after the end of the employer’s taxable year
Chapter 10, p. 103
2. Certain small employers may be eligible for a business tax credit for startup
costs or employee education expenses incurred in connection with the
adoption of a retirement plan. What is the maximum amount of the credit?
a.
b.
c.
d.
$500
$1,000
$1,500
$2,500
Chapter 10, p. 103
Chapter 10
3. The retroactive amendment provision allows plan sponsors to amend a plan
retroactively. What is the primary reason why a plan sponsor would use this
provision?
a.
b.
c.
d.
to add new employees to the plan
to increase plan contribution amounts
to name a new plan trustee
to eliminate certain disqualifying provisions
Chapter 10, p. 105
4. Which of the following are reasons for a plan sponsor to use a master or
prototype plan?
(1) reduce drafting costs
(2) simplify the determination letter procedure
(3) simplify installation
(4) gain greater flexibility than otherwise possible
a.
b.
c.
d.
(1) and (3) only
(1) (2) and (3) only
(2) (3) and (4) only
(1) (2) (3) and (4)
Chapter 10, p. 105
ANSWERS:
1. b
2. a
3. d
4. b