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18 Cards in this Set
- Front
- Back
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The only plans that can be established currently that allow 401(k) provisions are profit sharing and stock bonus plans, and SIMPLE plans. T or F? |
TRUE: SARSEPs allow 401(k) provisions, but as of 1997 they could no longer be established. |
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A safe harbor 401(k) plan, since it is a profit sharing plan, can suspend matching contributions if the company is having an unprofitable year. T or F? |
FALSE: Safe harbor 401(k) matching contributions are mandatory. If they are not going to be made then adequate notice must be given, and the plan will no longer be a safe harbor plan. Going forward, the plan will be subject to discrimination testing. |
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Safe harbor 401(k) plans are usually less expensive than a non-safe harbor plan where the employer needs to carry out ADP, ACP, and top heavy testing. T or F? |
FALSE: Employers with safe harbor plans do save the administrative costs they would normally have in order to carry out discrimination testing with a non-safe harbor plan. However there is a mandatory contribution that is required with safe harbor plans that is usually substantially more than the amount being saved on testing. |
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SIMPLE plans are only available for employers with 50 or fewer employees earning at least $5,000 or more during the preceding calendar year. T or F? |
FALSE: SIMPLE plans are available to employers who have 100 or fewer employees who earned $5,000 or more during the preceding calendar year. |
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Money Purchase Plans allow for 401k EE contributions and ER matching. T or F? |
FALSE: Currently only profit sharing plans, cash balance, and SIMPLE plans allow 401(k) provisions. |
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All profit sharing plans are also 401k plans. T or F? |
FALSE: Profit sharing plans are traditionally funded by the employer. Section 401(k) of the IRC allows for profit sharing plans to offer pretax employee deferrals, but it is not mandatory. There are still profit sharing plans that are entirely funded by the employer, and that do not offer 401(k) provisions. |
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The participants deferral amount affects the ultimate retirement benefit in a defined contribution plan. T or F? |
FALSE: Defined benefit plans, not defined contributions plans, have a plan formula that determines a participant's retirement benefit. |
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Employer qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) must be 100% vested at all times. T or F? |
TRUE: QMACs and QNECs enable a 401(k) plan to pass discrimination testing, and must be 100% vested. |
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The ratio percentage test and average benefits percentage test both look at highly compensated employees (HCEs) versus nonhighly compensated employees (NHCEs) to determine if a company passes the tests. T or F? |
TRUE: The ratio percentage and average benefits tests use highly compensated employees (HCEs), not key employees. |
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In the ADP test, the allowable spread % between NHCEs and HCEs is... |
25% |
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The maximum vesting schedule for defined contribution plans, which includes profit sharing plans, is... |
The maximum vesting schedule is either 2- to 6- year graded or 3-year cliff. |
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A defined contribution plan is considered top heavy if more than 60% of the account balances are attributed to... |
key employees. |
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A safe harbor 401(k) plan is deemed to have met both the... |
..ADP and ACP tests, and in addition it is not subject to the top-heavy rules. |
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Safe harbor 401(k) employer contributions must be vested... |
100% immediately. There is no vesting schedule allowed. |
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A solo 401(k) enables the unincorporated business to contribute up to... |
20% into the plan for the owner (business contribution), and the owner can also personally defer up to $18,000 (plus an additional $6,000 if age 50 or older). |
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Professionally managed funds could be offered under qualified default investment alternatives for 401(k) plans. T or F? |
TRUE: Professionally managed funds can include target retirement date funds, life cycle funds, & balanced funds. Fiduciaries must consider investment fees and expenses when choosing a qualified investment alternative. |
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If an employee with an outstanding loan leaves the company prior to the loan being repaid... |
... many companies require the loan to be repaid at termination of employment. Loans generally must be repaid within five years of being issued. |
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If a participant has a vested benefit of $15,000, the participant could be eligible to borrow $10,000. T or F? |
TRUE: Normally loans cannot exceed 50% of the participant's vested benefit. Also, $50,000 is the maximum amount that can be borrowed. However, plans can allow loans up to $10,000 without regard to the 50% restriction. |
