TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING
11th Edition
College Course Materials
Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
Associate Professor
CFP® Program Director
Personal Financial Planning Department
University of Missouri-Columbia
Please Note: Correct answers for each question are indicated in bold type. After each question,
the number of the page containing information relevant to answering the question is given. When
a calculation is necessary or the reasoning behind a given answer may be unclear, a brief
rationale for the correct answer is also given.
Part A: Retirement Planning
ERISA and Tax Rules for Qualified Plans
Chapter 7: Qualified Plans: General Rules for Qualification
True/False
7.1
The ratio benefit test states that a qualified plan must cover a percentage of nonhighly
compensated employees that is at least 70% of the percentage of highly compensated
employees covered.
7.2
A top-heavy plan is one that provides more than 60% of its aggregate accrued benefits or
account balances to key employees.
7.3
When applying coverage tests to evaluate the presence of discrimination in qualified plan
offerings, an employer must include all employees, even those who have a collective
bargaining agreement on retirement benefits.
Answers:
7.1
7.2
7.3
true [p. 63]
true [p. 72]
false [p. 64]
Multiple Choice
7.4
A qualified plan must satisfy which of the following tests?
a.
b.
c.
d.
e.
ratio percentage test
average benefit test
highly compensated test
either a or b
either b or c
Answer: D [p. 63]
7.5
Social security integration
a. reduces the cost of offering a qualified plan
b. allows an employer to make greater contributions or benefits for highly paid employees
c. must maintain a certain ratio of contributions to non-highly compensated individuals
versus highly compensated individuals to retain “permitted disparity”
d. only a and b
e. only a and c
Answer: D [p. 65]
7.6
For a defined contribution plan, annual additions include which of the following?
a.
b.
c.
d.
e.
employer contributions
employee salary reductions
plan forfeitures
all of the above
only a and b
Answer: D [p. 72]
Application
7.7
The owner of Hilton Tours is considering installing a money purchase plan and integrating
it with Social Security. Which of the following is true?
a. Social Security integration will allow Hilton Tours to make greater contributions to
higher paid employees
b. Hilton’s owner must use the excess method for integrating defined contribution
formulas with Social Security
c. Hilton’s owner must use the offset method for integrating defined contribution formulas
with Social Security
d. a and b
e. a and c
Answer: D [p. 68]
7.8
Dalton Construction has a defined contribution plan that provides 65% of account balances
to the three owners, each of whom have a 10% ownership of the company. To remain
qualified, which of the following vesting schedules would Dalton be permitted to use?
a.
b.
c.
d.
e.
5 year cliff
3 to 7 year
3 year cliff
a and b
b and c
Answer: C [p. 72]
7.9
As an actuary, you are helping Roadster Custom Auto Shop determine the annual cost of
their defined benefit plan. In making your calculations, you must make reasonable
assumptions about:
a.
b.
c.
d.
e.
employee turnover rate
employee salary scale
future investment and inflation rates
all of the above
only b and c
Answer: D [p. 69]
7.10
Bankroll Corp. sponsors a profit sharing plan in which Bankroll’s 4 employees made
elective deferrals. The payroll of Bankroll Corp. is $500,000. Bankroll’s deduction under
the limits enacted by EGTRRA 2001 is:
a.
b.
c.
d.
e.
$40,000
$75,000
$125,000
$165,000
$500,000
Answer: C [p. 70]