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
Defined Contribution Plans
Chapter 19: Savings/Match Plan
True/False
19.1
A savings plan is a qualified defined contribution plan that encourages employee after-tax
contributions
19.2
Employer matching contributions to a savings plan are subject to the same vesting
requirements as applied to top-heavy plans.
19.3
A savings plan is subject to ERISA reporting and disclosure rules.
Answers:
19.1 true [p. 171]
19.2 true [p. 172]
19.3 true [p. 174]
Multiple Choice
19.4
A savings/match plan works best in a company that has:
a.
b.
c.
d.
e.
relatively young employees
employees willing to accept investment risk
employees who vary widely in their need or desire to save for retirement
all of the above
only b and c
Answer: D [p. 171]
19.5
Savings plans and profit sharing plans share which of the following features?
a.
b.
c.
d.
e.
generous provision for employee withdrawal of funds
all contributions made on an before-tax basis
participants can select investment vehicles from a broad range of options
a and b
a and c
Answer: E [p. 172]
19.6
All of the following are true statements about savings plans except:
a.
b.
c.
d.
e.
life insurance can be used in a savings plan
the employer can make a matching contribution to the savings plan
employer matching contributions must follow a 3 to 7 year vesting schedule
employees can select investment vehicles among a set of predetermined options
employee contributions are not tax deductible
Answer: C [p. 172]
Application
19.7
Jane Tally has a thrift/savings plan with her employer. She knows
a. her contribution to the plan is voluntary and made with after-tax dollars
b. 100% of her contribution to her account is vested immediately
c. her employer’s contributions to her account must comply with Internal Revenue Code
requirements for qualified plans
d. all of the above
e. only a and b
Answer: D [p. 171]
19.8
Sam Blodgett, an employee at Cog Industries, has an employer-sponsored saving plan.
Cog offers employees a choice of 12 different mutual funds, three are index funds, and
among the rest are ones emphasizing international investments, small cap, large cap, and
bonds. Cog gives employees a 3% match for contributions with a 3 year cliff vesting in
those employer contributions. Two years ago, on a tip from his brother-in-law, Sam
decided to place all of his investment in one “hot” small cap mutual fund. Unfortunately for
Sam, about half of the companies in the fund went bankrupt or were close to it last year
and the value of his shares plummeted. Sam wants to sue Cog for his losses. Sam
a. has a case because Cog has a fiduciary responsibility to its employees
b. has a case because Cog did not offer financial planning advice to Sam
c. does not have a case because Cog matches employee contributions and thus shares
investment risk
d. does not have a case because Cog offered at least three different diversified
investment alternatives
e. does not have a case because federal law exempts employer from any investment
choice made by an employee
Answer: D [p. 172]
19.9
Harris Corporation has a savings plan for employees. Last year, Harris made non-elective
contributions amounting to 4% of compensation to all employee accounts. By doing this,
Harris has met the contribution requirements for a safe harbor test.
a. true
b. false
Answer: A [p. 173]
19.10 Last year, employee contributions and employer matching contributions amounted to 4% of
compensation for all non-highly compensated employees at Addison Corporation, a 400employee company. Which of the following options allow Addison to preserve a
nondiscriminatory plan during this plan year?
a. satisfying the requirements of a safe harbor 401(k) plan
b. keeping the average ratio of nonhighly compensated employee contributions to highly
compensated employee contributions at or below 4% to 6%
c. make sure employee contributions meet the requirements for a SIMPLE 401(k) plan
d. a and b
e. a and c
Answer: D [p. 173]