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71 Cards in this Set
- Front
- Back
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True or False If a qualified plan is frozen, the tax deferral of plan investment gains can be preserved in some cases. |
True Under a frozen plan, the tax deferral of plan investment gains can be preserved assuming the plan continues to meet all of the requirements imposed by the law. |
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If assets in a plan are insufficient to satisfy the payment of guaranteed benefits, which one of the assets has top priority regarding payment?
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Voluntary employee contributions less any withdrawals in the participant's separate account are called Category I benefits and have top priority regarding payment.
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If assets in a plan are insufficient to satisfy the payment of guaranteed benefits, what qualifies as Category II benefits regarding payment?
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Mandatory employee contributions less withdrawals in the participant's separate account plus 5% interest are called Category II benefits and have second priority regarding payment.
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If assets in a plan are insufficient to satisfy the payment of guaranteed benefits, what qualifies as Category III benefits regarding payment?
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Annuities provided with employer contributions in pay status at least three years prior to the termination of the plan are called Category III benefits and have third priority regarding payment.
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If assets in a plan are insufficient to satisfy the payment of guaranteed benefits, what qualifies as Category IV benefits regarding payment?
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All PBGC guaranteed benefits (after the mandatory employee contributions and the annuities provided with employer contributions) are called Category IV benefits and have fourth priority regarding payment.
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True or False Bankruptcy is, in itself, evidence that a company's plan was terminated for reasons of business necessity. |
True Under normal circumstances, bankruptcy would be prima facie evidence of business necessity to terminate a company's qualified plan. |
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True or False A distress termination of a defined benefit pension plan is caused by the plan not meeting required minimum funding standards. |
False A distress termination of a defined benefit pension plan is caused by financial hardship incurred by the company. An involuntary termination may be caused by the plan not meeting required minimum funding standards. |
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What is the difference between a distress termination and an involuntary termination of a defined benefit pension plan ?
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A distress termination of a defined benefit pension plan is caused by financial hardship incurred by the company. An involuntary termination may be caused by the plan not meeting required minimum funding standards.
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When does a standard termination of a defined benefit plan occur?
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A standard termination occurs when a plan has assets sufficient to provide all non-forfeitable benefits accrued at the time of termination, and the plan administrator has met certain notice and document requirements.
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Describe the involuntary termination of a qualified plan and who initiates it.
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An involuntary termination is initiated by the PBGC if a plan has not met minimum funding requirements or is unable to pay benefits when due. Accordingly, the termination may not be the result of a formal choice by a company's board or owners.
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True or False The account balances of all participants impacted by the discontinuance of a profit sharing plan must become 100% vested. |
True
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If a qualified plan that is exempt from the minimum funding requirements of the Internal Revenue Code is frozen, all plan participants are resulted in what % of vesting. |
All qualified plan participants are 100% vested if a plan that is exempt from the minimum funding requirements of the Internal Revenue Code is frozen.
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True or False If a defined benefit plan subject to requirements imposed by the Pension Benefit Guarantee Corporation (PBGC) has assets that are less than the present value of the accrued benefits upon termination, the assets must be allocated according to the plan administrator. |
False If a defined benefit plan subject to requirements imposed by the PBGC has assets that are less than the present value of the accrued benefits upon termination, the assets must be allocated according to the PBGC, not the plan administrator. |
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True or False The board of directors of a corporation must authorize the termination of a qualified plan sponsored by that corporation. |
True Among other requirements, the board of directors of a corporation must authorize the termination of a qualified plan sponsored by such corporation. |
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True or False If a qualified defined benefit pension plan is terminated, the employer is obligated to pay 100% of the normal retirement benefits promised by the plan document. |
False If a qualified defined benefit pension plan is terminated, the employer is obligated to pay the accrued benefits that were nonforfeitable, or vested, at the time of termination. All accrued benefits become 100% vested, but the accrued benefits at time of termination of a plan will normally not be as high as the benefits would be if the plan continued to the normal retirement age of the participants. |
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True or False To be considered a guaranteed benefit, a benefit must be payable directly or indirectly to a living person. |
True A benefit must be payable directly or indirectly to a living person to be considered a guaranteed benefit. |
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True or False The requirement of permanency for a pension plan means that a plan cannot be closed after a couple of years, even if due to business necessity. |
False If, due to business necessity, a plan is in existence for only a couple of years but then terminated, it is not in violation of the permanency requirement. |
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True or False Defined contribution plans are subject to PBGC requirements. |
False Defined contribution plans are not subject to PBGC requirements (although most defined benefit plans are). |
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True or False A partial termination is deemed to occur if a defined benefit plan ceases or decreases benefit accruals and, as a result, there is a potential for a reversion of surplus assets to the employer. |
True One situation that is considered a partial termination is where a defined benefit plan ceases or decreases benefit accruals and, as a result, there is a potential for a reversion of surplus assets to the employer. |
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True or False A plan will not continue to be qualified if an amendment has the effect of decreasing an accrued benefit. |
True
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True or False A complete discontinuance of a plan may occur even though an employer has contributed some amounts under the plan. |
True A complete discontinuance of a plan may occur if the employer makes contributions that are not substantial enough to reflect the employer's intent to maintain the plan. |
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What is a frozen plan?
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A frozen plan is one that continues to exist but discontinues employer contributions with defined contribution plans. Freezing a defined benefit plan ceases future benefit accruals.
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True or False If a plan is frozen, it no longer needs to meet the nondiscrimination requirement. |
False Even if a plan is frozen, it must continue to meet various IRS requirements, one of which is the nondiscrimination requirement. |
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True or False Crevatte Corporation's defined benefit pension plan recently made a $600,000 lump-sum distribution payment to a restricted employee. Following this distribution, the ratio of the company's pension plan assets to current liabilities was 100%. The early termination restriction applies to this situation. |
True The early termination restrictions for defined benefit pension plans apply if, after taking into account a $600,000 lump-sum distribution payment made to a restricted employee, the ratio of plan assets to current liabilities only equals 100%. The early termination restrictions don't apply if the value of plan assets at least equal or exceed 110% of the value of current liabilities, as defined by the Internal Revenue Service. (In other words, the ratio of plan assets to current liabilities must at least equal or exceed 110%.) |
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True or False When a defined contribution plan terminates, the plan must provide a method for allocating any previously unallocated funds. |
True One requirement that applies to a terminating defined contribution plan is that the plan must provide a method for allocating any previously unallocated funds. |
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True or False If a defined benefit plan has assets that exceed the present value of the accrued benefits, the excess may revert to the employer. |
True If a defined benefit plan has assets that exceed the present value of the accrued benefits, one acceptable method of handling that excess is to revert it back to the employer. |
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True or False When a corporation with a qualified plan purchases another corporation that also has a qualified plan, one option not available to the buying corporation is terminating the seller's plan. |
False A buying corporation does have the option of terminating the qualified plan of the seller. |
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What is the penalty for late filing of Form 5330?
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As a general rule, the penalty for late filing of Form 5330 is 5% of the unpaid tax for each month the return is late, up to 25% of the unpaid tax.
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What is form 5330 used for?
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Form 5330 is used to report the types of excise taxes.
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True or False Plan sponsors/administrators may be assessed a penalty if the deposit of taxes withheld is late. |
True
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True or False In the case of a single-employer plan, the IRS imposes an excise tax equal to 50% of the total unpaid minimum required contributions for all plan years that remain unpaid as of the end of any plan year. |
False The IRS imposes a 10%, not a 50%, excise tax on a single-employer plan's unpaid minimum required contributions for all plan years that remain unpaid as of the end of any plan year. |
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A plan administrator or employer that fails to timely file a Form 1099–R for a distribution made to a plan participant (or former participant) is subject to a late filing penalty of?
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$25 per day for failing to file such return, up to a maximum penalty of $15,000.
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If a plan administrator fails to pay PBGC premiums when due, a penalty of up to what % may be accessed?
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100% PBGC's late payment penalty charge is subject to ERISA's restriction that the penalty cannot exceed 100% of the unpaid premium amount. |
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If a plan sponsor fails to file an annual report on its pension plan, the Department of Labor may impose a penalty of up to what dollar amount per day?
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The seriousness of a plan sponsor failing to file an annual report on its pension plan is reflected in the fact that the Department of Labor may impose a penalty of up to $1,100 per day.
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When cash and/or assets beyond the amount due to participants under a defined benefit plan goes back to the company, what is it called?
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A reversion.
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True or False Excess contributions to qualified retirement plans that are not deemed to be substantial overstatements are subject to an excise tax of 20%. |
Excess contributions to qualified retirement plans that are not deemed to be substantial overstatements are subject to an excise tax of 10%, not 20%.
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Excess contributions to qualified retirement plans that are not deemed to be substantial overstatements are subject to an excise tax of...?
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10%
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If a plan sponsor fails to file an annual report on its pension plan, penalties can be assessed by who?
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Department of Labor and the IRS concurrently
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If an employer establishes a qualified replacement plan that receives at least 25% of the excess benefits from a terminated defined benefit plan, the excise tax rate on reversions to the original plan sponsor is...?
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20%
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Excess contributions to qualified retirement plans that are deemed to be substantial overstatements are subject to an excise tax of...?
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20%
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True or False A plan that takes advantage of the Employee Plans Compliance Resolution System (EPCRS) must correct all defects for the past three years. |
False A plan that takes advantage of the Employee Plans Compliance Resolution System (EPCRS) must correct all defects for all years they existed. |
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When there is a notice of a pending IRS EP audit, what program can resolve form and operational issues that would otherwise result in disqualification.
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the Audit Closing Agreement Program (Audit CAP)
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True or False Plans that use the Voluntary Correction Program (VCP) must pay a compliance fee that is based on the severity of the defects only. |
Plans that use the Voluntary Correction Program (VCP) must pay a compliance fee that is based on the size of the plan assets and the number of plan participants.
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In what year does the IRS's Self-Correction Program require that most corrections be completed by? |
The second plan year following the plan year in which the violations occurred.
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True or False The Voluntary Correction Program (VCP) can address most qualification failures and operational failures. |
The Voluntary Correction Program can address practically all qualification failures; i.e., plan document failures, operational failures, demographic failures, and employer eligibility failures. Among other things, VCP can address the plan's failure to provide top-heavy minimum benefits.
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The Discrepancy Adjustment Program (DAP) provides who the authority to make adjustments to Forms 1120 and 1040 based on audits of qualified plans.
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EP and EO specialists
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True or False The IRS's view is that a commercial creditor's attachment of a participant's qualified plan benefits disqualifies the plan. |
True A commercial creditor's attachment of a participant's qualified plan benefits disqualifies the plan according to the IRS. As a general rule, qualified plan benefits are protected from garnishment. |
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True or False In certain states, nonbankruptcy creditors may attach a certain percentage of a debtor's IRA benefits. |
True ERISA's anti-alienation provision does not protect IRAs from the claims of nonbankruptcy creditors. However, this provision does protect retirement benefits held in a qualified plan (other than a qualified plan that covers owner-employees only) from the claims of nonbankruptcy creditors. |
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True or False Plans using an IRA may be awarded to an ex-spouse according to the terms of a qualified domestic relations order (QDRO). |
Plans using an IRA may be awarded to an ex-spouse according to the terms of a divorce decree, not a qualified domestic relations order (QDRO), since the latter applies to qualified plans.
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If a defined benefit plan is terminating, what are acceptable procedures for missing participant.
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1) purchase an annuity on behalf of the missing participant 2) purchase an annuity on behalf of the missing participant However, a diligent search by the defined benefit plan must be made before either procedure is used. |
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Is malfeasance committed by a plan participant against an employer a reason for an employer to submit a claim against the participant's benefits?
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No. Qualified plans are generally prohibited from garnishing or seizing a participant's benefits, including an employer submitting a claim against a participant's benefits for reasons of malfeasance.
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True or False Federal law permits creditors to claim assets in a qualified plan only if the debtor declares bankruptcy. |
False The U.S. Supreme Court ruled in 1992 that creditors in bankruptcy proceedings have no claims to the benefits of qualified plan participants. However, many courts interpret the 1992 Supreme Court case as being limited to qualified plans that cover at least one common law employee who is not a shareholder or owner of the company sponsoring the qualified plan. Following the enactment of the Bankruptcy Abuse Prevention and Consumer Act of 2005, all retirement funds that are exempt from taxation under Internal Revenue Code Sections 401, 403, 414, 457, or 501(a) are now outside the reach of bankruptcy creditors. |
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Assume a plan participant is 60% vested when the plan is terminated due to the company's bankruptcy. The monthly benefit guaranteed by the PBGC is based upon what vested percentage for this participant? |
60%Generally, the vested interest of the participant will be based upon the amount of nonforfeitable benefits to which he or she was entitled immediately prior to plan termination. (The PBGC guarantee does not extend to an interest in which a participant is 100% vested because of plan termination, but rather is based upon the interest in which the participant is (or was) vested for any reason other than plan termination.) |
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Is a substantial change in stock ownership is an acceptable reason for termination of a plan. |
Yes |
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Which of the following qualified plans are subject to the requirements of the PBGC? -target benefit plans -employee stock ownership plans -government plans |
None of the following plans are subject to PBGC requirements: target benefit plans, employee stock ownership plans, or government plans. Typically, defined benefit plans are subject to PBGC requirements. |
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If a plan is frozen, must it still meet the IRS coverage requirements, the funding requirements if it is a defined benefit plan, or both? |
both If a plan is frozen, it still must meet both the IRS coverage requirements and the funding requirements if it is a defined benefit plan (as well as other requirements). |
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Restricted employees, when used in the context of early termination restrictions, are employees who |
are among the 25 highest-paid current or former highly compensated employees in the current or any prior year. Early termination restrictions apply to highly compensated employees (HCEs) who are considered by law to be "restricted employees." The term restricted employee means any HCE or former HCE who is one of the 25 (or a larger number chosen by the employer) employees or former employees of the employer with the largest amount of compensation in the current or any prior year. |
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Gross valuation misstatements relating to a qualified retirement plan are subject to a penalty of |
The severity of gross valuation misstatement is reflected in the 40% penalty assessed when such a determination is made. |
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Reversions to which of the following are subject to income tax? -private employers - government employers - tax-exempt employers - all of the above |
private employers Reversions to private employers are subject to income tax, but reversions to government employers and tax-exempt employers are not. |
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Which of the following may occur if a qualified plan sponsor fails to file an annual report on its pension plan that is subject to Title I of ERISA? -The Department of Labor may impose a penalty. -The IRS may impose a penalty. -The PBGC may impose a penalty. -All of the above. |
If a plan sponsor fails to file an annual report on its pension plan, the Department of Labor, IRS, and PBGC may impose a penalty. |
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If a plan administrator fails to provide notices or other material information concerning PBGC plan termination insurance, the penalty can be up to |
$1,100 per day. |
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If a plan is currently under an EP examination, it cannot use SCP to correct significant operational errors. |
If a plan is currently under an EP examination, it cannot use SCP to correct significant operational errors. However, if correction of significant operational failures has been completed or substantially completed before the plan or plan sponsor is under examination, correction of those failures can be completed under SCP. |
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Under the Audit Closing Agreement Program (Audit CAP), closing agreements are issued only in cases where the plan sponsor will make 1) retroactive and prospective corrections to all plan defects. 2) payment of a negotiated dollar sanction based upon the tax liability the plan would have incurred had it been disqualified. 3) both 4) neither |
both Closing agreements under Audit CAP are issued (1) where the plan sponsor will make retroactive and prospective corrections to all plan defects and (2) where the plan sponsor will make payment of a negotiated dollar sanction based upon the tax liability the plan would have incurred had it been disqualified. |
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Which of the following retirement arrangements is subject to the Bankruptcy Abuse Prevention and Consumer Protection Act's $1 million inflation-adjusted statutory limit on the amount of assets that are protected from bankruptcy creditors? - SEP IRAs - SIMPLE IRAs - deductible IRAs |
deductible IRAs This is the correct answer. The $1 million inflation-adjusted cap applies to deductible IRAs. (which does not apply to SEP and SIMPLE IRAs |
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A participant's assignment of his or her qualified plan benefits will disqualify the plan in which one of the following situations? 1) QDRO 2) pay for back taxes assessed by IRS 3) security for a car loan |
An assignment of qualified plan benefits to pay for back taxes assessed by the IRS will not disqualify a plan. a car loan will |
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Which one of the following is a characteristic of IRS's Voluntary Correction Program (VCP) for qualified plans? 1) operational errors only 2) plans that are under audit 3) plans with practically all types of qualification failures, not just operational errors |
3) The program applies to plans with practically all types of egregious qualification failures, not just plans with operational errors. |
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IRS's Self-Correction Program (SCP) is characterized by a procedure through which an employer or plan sponsor can correct -all operational failures -certain operational failures -certain plan document failures -all qualification failures |
IRS's Self-Correction Program (SCP) is characterized by a procedure through which an employer or plan sponsor can correct certain operational failures only. Not plan document failures. Not qualification failures. |
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Which correction program is only available through the Department of Labor (DOL)? |
The Delinquent Filer Voluntary Compliance Program is a DOL program only. |
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Frankton Corporation's defined benefit pension plan has not met the minimum funding requirements imposed by the Internal Revenue Code for several years now and is currently unable to pay pension benefits to individuals who have retired. In the event that the plan administrator and the Pension Benefit Guaranty Corporation (PBGC) cannot agree, a termination date will be established by - a court - the PBGC - the corporation's board of directors |
a court This is the correct answer. In the event the plan administrator and the PBGC cannot agree on a plan termination date, a termination date will be established by a federal court. |
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If a qualified defined contribution plan is being terminated, the Department of Labor (DOL) has indicated that after conducting a diligent search, a rollover to an IRA of a missing plan participant's benefits that exceed ________ is allowed. |
If a qualified defined contribution plan is being terminated, DOL has indicated that after conducting a diligent search, a rollover to an IRA of a missing plan participant's benefits that exceed $5,000 is allowed. If a missing plan participant's benefits are less than $5,000, the benefits may be transferred to the PBGC upon plan termination. |
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What three items are an exception to the prohibition against assigning a plan participant's benefits? |
Qualified domestic relations orders, IRS collections, and voluntary assignments are all exceptions to the prohibition of assigning a plan participant's benefits. |
