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
Other Employer Retirement Plans
Chapter 27: Section 457 Plan
True/False
27.1
A Section 457 plan that includes limits on the amount deferred is generally referred to as
an eligible Section 457 plan.
27.2
Any participant in a Section 457 plan who is over age 50 can take advantage of the 50-orover catchup contributions.
27.3
Qualified plan minimum distribution rules apply to Section 457 plans.
Answers:
27.1 True [p. 249]
27.2 False [p. 250, This option is open to government employees but not private tax-exempt
employees]
27.3 True [p. 251]
Multiple Choice
27.4
Which of the following employers can offer a Section 457 plan:
a.
b.
c.
d.
e.
a public school
a tax exempt organization
a church or synagogue
a and b
b and c
Answer: D [249 – state and tax-exempt can offer; church or synagogue or organization controlled
by church or synagogue cannot offer]
27.5
Plan distributions from a Section 457 plan cannot be made before
a.
b.
c.
d.
e.
the calendar year in which the participant reaches age 70 ½
severance from employment
occurrence of an ‘unforeseen emergency’
any of the above
only b and c
Answer: D [ p. 250]
27.6
All of the following statutory provisions would allow deferred compensation beyond the
annual dollar limit except:
a.
b.
c.
d.
e.
grandfatherered plans
nonemployee plans
forfeitable plans
severance pay plans
eligible plans
Answer: E [p. 252-253]
Application
27.7
Arthur works as a janitor for the Municipal School district weekday evenings and part-time
for the Municipal Power Plant on weekends. He earns $25,000 from the school district and
$10,000 from the power plant each year. Both employers have a Section 457 plan. Which
of the following is true?
a. Arthur can contribute the maximum allowed by law to both plans
b. Arthur’s total contribution to both plans must be at or below plan limits set by Congress
for the year that the contribution was made
c. Arthur can only contribute to one of the plans up to the maximum allowed by law
d. according to federal law, Arthur cannot contribute to the Section 457 plan at the
Municipal Power Plant because he is a part-time employee
e. none of the above
Answer: B [p 251 employee benefits are decided by the employer, so part-time workers can be
benefit eligible; Arthur can contribute to both plans, but total contributed cannot exceed statutory
contribution limit for the year]
27.8
Last month, Miss Happ, age 54, fell off a ladder while changing a light. She broke the light
and her hip. She had surgery and a week long stay at the hospital. Toward the end of the
week, she realized that she had forgotten to mail in her health insurance premium and her
policy had lapsed. When she was discharged, shock from the size of her hospital bill
nearly put her back into the hospital. She has a Section 457 plan with her employer with a
balance that slightly exceeds her hospital and doctor bills. Miss Happ:
a. can borrow an amount equivalent to her bill from her Section 457 plan balance
b. cannot withdraw funds from her Section 457 plan because she is under age 70 ½
c. cannot withdraw funds from her Section 457 plan because she did not stop working for
her employer
d. can withdraw funds from her Section 457 plan because the health related expenditures
would qualify as an ‘unforeseeable emergency’
e. can only withdraw funds if her employer is a government agency and not a private nonprofit
Answer: D [p. 252 - unforeseen medical expenses qualify as an unforeseeable emergency]
27.9
I. M. Gone and his wife Wobie are getting a divorce. I. M. thinks that he can keep Wobie
from getting any of his Section 457 plan assets because a Qualified Domestic Relations
Order [QDRO] does not apply to nonqualified plans. I. M. is
a. Right
b. Wrong
Answer: B [p. 253 qualified plan rules regarding QDROs apply to Section 457 plans]
27.10 The local government in Central City is considering using an alternative to a Tax Deferred
Annuity as a retirement plan. Which of the following could Central City Government use?
a.
b.
c.
d.
e.
401(k) plan
SIMPLE IRA
SIMPLE 401(k)
Section 403(b)
city governments can only use a Tax Deferred Annuity
Answer: B [p. 254]