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65 Cards in this Set

  • Front
  • Back

All of the following statements regarding plan qualification under IRC §401(a) are TRUE, EXCEPT:




A. A defined contribution plan must satisfy the minimum participation requirements of IRC §401(a)(26).




B. The plan must not discriminate in favor of HCEs.




C. The plan must be maintained for the exclusive benefit of the participants and their beneficiaries.




D. A plan must provide a direct rollover option for an eligible rollover distribution.




E. The plan must satisfy qualification requirements in form.

A




The minimum participation requirements of IRC §401(a)(26) are only applicable to defined benefit plans.




The other statements regarding plan qualification are true. The plan must not discriminate in favor of HCEs, it must be maintained forthe exclusive benefit of the participants and their beneficiaries, it must provide a direct rollover option for an eligible rolloverdistribution and it must satisfy qualification requirements in form and operation. Compliance in form means the written plan document includes the relevantprovisions of IRC §401(a). Failure to satisfy the form requirement is grounds for disqualification, even if the plan is operated properly.

Which of the following is/are types of situations that may cause a plan to be disqualified?




I. Operational failures




II. Demographic failures




III. Plan document failures




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

E




All of these situations may cause a plan to be disqualified

All of the following statements regarding correction principles under the EPCRS programs are TRUE, EXCEPT:




A. Correction of operational errors must take into account the terms of the plan at the time the error was made.




B. If the earnings are negative, a corrective contribution need not reflect the loss.




C. Full correction must generally be made for all plan years except those years that are closed for auditpurposes.




D. A correction method should generally keep the assets in the plan except when rules require correctivedistribution.




E. The correction should restore the plan to the position it would have been in had the error not occurred.

C




If an error has occurred historically over several years, the EPCRS correction procedures require that the error be corrected for allaffected years, even if the years are closed for audit purposes.

Which of the following statements regarding correction programs is/are TRUE?




I. The violation must not involve misuse or diversion of assets for a qualified plan to be able to correct a significant failure under SCP.




II. SCP involves no disclosure or fees to the IRS.




III. Any VCP submission may be made as an anonymous submission.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III

E




If a qualification failure involves the diversion or misuse of plan assets, relief under any of the EPCRS programs is not available, noteven under Audit CAP.




The Self-Correction Program (SCP) is a self-initiated correction program for resolving operational failures. It involves no disclosure orfees to the IRS.




The Voluntary Correction with IRS Approval Program (VCP) is a self-initiated program for fixing qualification failures. However, incontrast to SCP, VCP requires disclosure to the IRS and a payment to the IRS (called a VCP compliance fee). Any VCP submissionmay be made as an Anonymous Submission, regardless of the type of plan (qualified plan, 403(b) plan, SEP, SIMPLE IRA plan) or thetype of failure (operational failure, demographic failure, plan document failure, employer eligibility failure).

All of the following statements regarding plan documents are TRUE, EXCEPT:




A. A volume submitter plan consists of a specimen plan and incorporates all possible operational provisionsthat may be used in that specimen plan.




B. An M&P plan must be maintained by a sponsoring organization.




C. An M&P plan consists of a basic plan document and a trust document.




D. A trust document may be separate from the plan document.




E. A trust document may be incorporated within the plan document.

C




A masteror prototype (M&P) plan consists of a basic plan document and an adoption agreement.

All of the following statements regarding determination letters are TRUE, EXCEPT:




A. A plan is not required to obtain a favorable determination letter.




B. Advisory letters are issued for volume submitter documents.




C. Opinion letters are issued for prototype documents.




D. A favorable determination letter may be requested on a plan amendment.




E. Adopting employers may not request a favorable determination letter in addition to an opinion letter.

E




Adopting employers may get a favorable determination letter in addition to the opinion letter issued on the basic plan document, ifdesired.

All of the following statements regarding pension and nonpension plans are TRUE, EXCEPT:




A. Only pension plans are subject to minimum funding requirements under IRC §412.




B. Both pension and nonpension plans may permit distribution upon attainment of age 59½.




C. Only nonpension plans may include a 401(k) arrangement.




D. Only pension plans are subject to the definitely determinable benefit requirements.




E. Both pension and nonpension plans are subject to QJSA rules under IRC §417, but the nonpension plansmay qualify for an exemption.

B




Pension plans may permit distribution only upon retirement, death, disability, termination of employment and in-service distributions toa participant who has reached age 62, even if normal retirement age is later than age 62.

Based on the following information, determine when Employee D will enter the plan:




--The eligibility requirements are one year of service and attainment of age 21.




--Employee D is a full-time employee.




--Employee D’s date of hire is September 2, 2014.




--Employee D’s date of birth is March 5, 1995.




--The plan entry date is the earlier of January 1 or July 1 following the date the eligibility requirements are satisfied.




A. September 1, 2015


B. January 1, 2016


C. March 5, 2016


D. July 1, 2016


E. September 1, 2016

D




Employee D is age 21 on March 5, 2016. Employee D has one year of service on September 2, 2015. The later of these two dates isMarch 5, 2016. Employee D enters the plan on July 1, 2016, the first entry date after March 5, 2016.

Which of the following statements regarding eligibilty computation periods is/are TRUE?




I. The first eligibility computation period may be defined as ending on the last day of the plan year.




II. The eligibility computation period must be a period of 12 consecutive months.




III. The second eligibility computation period may be defined as the 12-month period following the participant’s date of birth.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

B




An eligibility computation period is the period during which an employee’s hours are examined to determine whether a year of servicehas been completed. The eligibility computation period must be a period of 12 consecutive months.The first eligibility computation period must begin on the employee’s employment commencement date. Eligibility computation periodsafter the first such period may be defined as either:(a) the plan year; or(b) 12-month anniversary periods of the initial eligibility computation period.The plan must define which method it will use to determine eligibility computation periods after the first period. No other method isacceptable in determining whether the statutory requirements are satisfied.

Which of the following statements regarding eligibility computation periods is/are TRUE?




I. The plan may use a short plan year as an eligibility computation period.




II. The intial eligibility computation period must begin on an employee’s employment commencement date.




III. The eligibility computation period may be defined as the 12-month anniversary period following the first computation period.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

D




An eligibility computation period is the period during which an employee’s hours are examined to determine whether a year of servicehas been completed. The eligibility computation period must be a period of 12 consecutive months.




The first eligibility computation period must begin on the employee’s employment commencement date. Eligibility computation periodsafter the first such period may be defined as either:


(a) the plan year; or


(b) 12-month anniversary periods of the initial eligibility computation period.




The plan must define which method it will use to determine eligibility computation periods after the first period. No other method isacceptable in determining whether the statutory requirements are satisfied.





All of the following statements regarding eligibility requirements are TRUE, EXCEPT:




A. A plan may have different eligibility requirements for 401(k) deferrals than for matching contributions.




B. A 401(k) portion of a plan may not require more than one year of service for eligibility purposes.




C. A plan that includes a 401(k) arrangement may require two years of service for matching contributioneligibility.




D. A plan that includes a 401(k) arrangement may require two years of service for nonelective contributioneligibility.




E. A plan may include an age 22 requirement as long as there is no service requirement.

E




A plan may impose less restrictive age and service requirements for eligibility to participate (that is, a shorter service requirement or ayounger age requirement than the statutory maximums), but may not impose more restrictive age and service requirements foreligibility to participate (that is, a longer service requirement or an older age requirement than the statutory maximums). An age 22requirement is more restrictive than the statutory maximum.

All of the following statements regarding eligibility requirements are TRUE, EXCEPT:




A. Employees may be required to work two years of service before becoming eligible for a matchingcontribution.




B. A plan may have different eligibility conditions for different groups of employees.




C. A plan with age 21 and one year of service eligibility requirements may waive those requirements foremployees employed when the plan was first established.




D. A money purchase pension plan may require two years of service for eligibility.




E. A plan amendment that changes the eligibility requirement must grandfather in existing participants.

E




Plan amendments changing eligibility requirements often grandfather in existing participants, but it is not a requirement to do so.

All of the following types of service must be credited to a participant in order to avoid a break in service, EXCEPT:




A. Unpaid employer-approved personal leaveB. Family and Medical Leave


C. Military service


D. Unpaid maternity leave


E. Unpaid paternity leave

A




Plans are not required to credit service for unpaid employer-approved personal leave under the break-in-service rules.

All of the following statements regarding the effect of changing a plan’s eligibility requirements from three months of service to oneyear of service are TRUE, EXCEPT:




A. Existing participants must be allowed to continue participation, even if they haven’t satisfied the neweligibility conditions.




B. Existing participants’ accrued benefits are protected.




C. Rehired former participants may need to satisfy the new requirements before re-entry.




D. Existing participants who have already satisfied the new eligibility conditions continue to participate.




E. The right to continue to participate in a plan is not a protected benefit.

A




It is not required that existing participants be allowed to continue participation if they have not satisfied the new eligibility conditions.




When the eligibility conditions are amended, the plan may (but is not required to) provide that the existing participants aregrandfathered in, meaning that their participation continues even if they cannot satisfy the new eligibility conditions. If the eligibilityrequirements are modified in a way that the employee is no longer satisfies the requirements for participation, the participant’saccrued benefit is protected, but the employee will not accrue additional benefits until he or she first re-establishes the right toparticipate in the plan under the modified eligibility requirements.




A change in eligibility requirements may affect the re-entry of a rehired employee who was formerly a participant in the plan. Unlessthe amendment grandfathered in former participants, the rehired employee would have to satisfy the new requirements before his orher participation could resume.




The modification of the plan’s eligibility service condition will not cause an employee to lose participant status if the employee hasalready satisfied the new requirement. Just because an employee qualifies as a participant in the plan does not guarantee theemployee the right to participate in the plan for the rest of his or her employment with the employer. The right to continue toparticipate in a plan is not a protected benefit.

Based on the following information, determine the HCEs for 2015:




--None of the employees are related.


--The top-paid group election is not made.




EE 2014 comp 2015 comp office Owner%


A $150,000 $200,000 Yes 50%


B $125,000 $150,000 Yes 0%
C $86,000 $92,000 Yes 0%
D $60,000 $70,000 no 45%
E $35,000 $40,000 no 5%




A. Employees A and B only


B. Employees A and D only


C. Employees A, B and D only


D. Employees A, D and E only


E. Employees A, B, C, D and E

C




An employee is an HCE in 2015 if they are a more than 5% owner in 2014 or 2015, or if they earn more than $115,000 in 2014.Employee A is a more than 5% owner. Employee B earned more than $115,000 in 2014 (the lookback year). Employee D is a morethan 5% owner.

All of the following statements regarding the calendar year data election are TRUE, EXCEPT:




A. The election is independent of the top-paid group election.




B. The election may be withdrawn by a plan amendment.




C. The election is applicable to the compensation test.




D. The election is not applicable to the ownership test.




E. The election applies to calendar year plans.

E




A calendar year data election affects the calculation of the lookback year. If the election is made, the lookback year is the calendaryear that begins in the 12-month period preceding the current plan year. The calendar year data election does not impact a calendaryear plan. It applies only to non-calendar year plans.




The calendar year data election applies only to determine the lookback year for the compensation test and does not apply todetermine the HCEs under the 5 percent owner test.




The calendar year data election is independent of the top-paid group election.The calendar-year data election must be reflected in the document only if a plan otherwise contains an HCE definition. If included inthe plan document, the calendar year data election may be withdrawn with a plan amendment. If a plan does not include a definitionof HCE, the calendar year data election may be made operationally.

Which of the following statements regarding HCEs within the meaning of IRC §414(q) is/are TRUE?




I. Compensation is considered when applying the ownership test.




II. An employee’s ownership in the current plan year is considered when determining HCE status.




III. An employee’s compensation in the current plan year is considered when determining HCE status.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III

B




Compensation is not considered when applying the ownership test. An employee’s compensation in the current plan year is notconsidered when determining HCE status. Only prior year compensation is considered

All of the following statements regarding the top-paid group election are TRUE, EXCEPT:




A. The top-paid group is not used in the determination of key employees.




B. An employee may be considered an HCE if in the top 20 percent of employees when ranked bycompensation in the lookback year.




C. If an employer makes a top-paid group election in one plan it must do so in all other plans that begin in thesame calendar year.




D. An employee who is a more than 5 percent owner may be considered an NHCE if the employer makes thetop-paid group election.




E. The decision to use the top-paid group election in determining HCEs, if made, must be included in aprototype plan document.

D




The employer may elect to (but is not required to) limit the number of employees who can be treated as satisfying the compensation test for HCEdetermination purposes. Under the top-paid group election, an employee would satisfy the compensation test only if:




• the employee was in the top 20 percent of employees for the lookback year, ranked by compensation; and




• the employee’s compensation for such prior year was in excess of the required dollar amount.




The top-paid group election applies only to the compensation test and does not affect whether an employee is an HCE under the 5 percent ownertest. When making the top-paid group election, employees who are not HCEs because of the top-paid group determination are included in allcoverage and nondiscrimination tests as NHCEs, unless they meet the 5 percent owner test.




If the plan document contains a definition of HCE, the top-paid group election must be stated in the plan document. The top-paid group electionmust be used consistently. That is, if the employer maintains two or more plans with different plan years, the election to use the top-paid groupmust apply to all plan years for each plan that begins in the same calendar year. The top-paid group election may only be used for HCEdetermination purposes and may not be used in the determination of key employees.

Based on the following information, determine the top-heavy ratio as of December 31, 2015:




EE Key 12/31/15 Balance Term Dist Yearpaid


A Yes $270,000 $30,0000 09


B No $60,000 $0


C Yes $30,000 $0


D No $0 10/15/14 $15,000 15


E No $27,000 $0


F No $13,000 8/1/15 $0
G Form $150,000 $0




A. $300,000 / $400,000


B. $300,000 / $415,000


C. $300,000 / $445,000


D. $330,000 / $430,000


E. $330,000 / $445,000

A




First determine the participants included. Participant D is not included because Participant D did not have at least one hour of servicein the determination year (2015). The top-heavy ratio does not include the value of a former employee’s account or distributions if heor she has not been credited with at least one hour of service during the determination period. Participant G is not included becauseParticipant G is a former key employee. The account of a former key employee and any distributions made to a former key employeeare excluded from both the numerator and the denominator of the top-heavy ratio—that is, it is like that person never existed.




Second determine which distributions need to be included – none, since the in-service distribution to Participant A occurred morethan five years ago. The numerator is the key employee balances ($270,000 + $30,000) and the denominator is the total balances ofall includable employees ($270,000 + $60,000 + $30,000 + $27,000 + $13,000). The top-heavy ratio is ($300,000 / $400,000).

All of the following statements regarding top-heavy plans are TRUE, EXCEPT:




A. Top-heavy plans are subject to minimum vesting requirements.




B. Top-heavy minimum contributions are allocated based on compensation from the participant’s date of entry.




C. A SEP is subject to top-heavy rules.




D. Account balances from after-tax employee contributions are included in the top-heavy determination.




E. The determination date for a newly established 401(k) plan is the last day of the first plan year.

B




Compensation for purposes of determining top-heavy minimum allocations is IRC §415 compensation. IRC §415 compensationincludes compensation from the beginning of the plan year, rather than from the participant’s date of entry.

All of the following are considered key employees, EXCEPT:




A. A 2% owner earning $200,000


B. A 25% owner who is an officer


C. A 0.5% owner earning $180,000


D. A 50% owner earning $10,000


E. A 4% owner earning $400,000

C




An employee is a key employee if they are a more than 5% owner, if they are a more than 1% owner and have compensation inexcess of $150,000, or if they are an includible officer satisfying the compensation test.

Based on the following information, determine the amount that must be deposited into the plan in order to satisfy the requiredminimum top-heavy contribution for the non-key employees:




--All contribution sources, as permitted by law, may be used to satisfy the required top-heavy minimum contribution.




--The plan document does not limit the use of particular contributions for this purpose.




--The contributions included in the following chart have already been deposited into the plan.




EE Comp Elct Cntrb Carchup martch


Key $200,00 $10,000 $5,000 $2,500


N/K $75,000 $1,500 $0 $375


n/K $60,000 $0 $0 $0




A. $3,675


B. $4,050


C. $5,025


D. $5,400


E. $10,050



A




The minimum required top-heavy contribution is 3% of the total non-key compensation. To determine the amount to be deposited, theminimum required top-heavy contribution should be reduced by any employer contributions that are eligible to be used towardsatisfying the requirement.




The total non-key compensation is $135,000 ($75,000 + $65,000). $135,000 x 3% = $4,050. $4,050 –$375 in employer matching contributions = $3,675 to be deposited.The top-heavy minimum must be satisfied with employer contributions and/or forfeitures. Employer contributions include nonelectiveprofit sharing contributions, pension contributions, matching contributions, QNECs, QMACs, safe harbor matching contributions andsafe harbor nonelective contributions. Note that it is permissible for plan documents to limit the use of certain contributions for topheavyminimum purposes. For example, a plan sponsor may elect in the plan document that matching contributions are not to beused toward satisfying the top-heavy minimum. That is not the case in this particular example.

Which of the following types of plans covering at least one key employee is/are subject to aggregation for top-heavy purposes?




I. SEP plan


II. SIMPLE IRA plan


III. SIMPLE 401(k) plan




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III

A




Any qualified plan or SEP is subject to aggregation for top-heavy purposes. SIMPLE IRA or SIMPLE 401(k) plans are not subject toaggregation for top-heavy purposes, as they are both exempt from the top-heavy rules. If a SIMPLE 401(k) plan is later converted toa regular 401(k) plan or is replaced by another type of qualified plan, the converted or replaced plan would be includible in therequired aggregation group if it covered a key employee.

Based on the following information, determine the number of NHCEs that must benefit under the plan to satisfy the ratio percentagetest under IRC §410(b):




--ABC Company has two divisions, A and B.




--ABC Company wants to establish a profit sharing plan to cover only employees of Division B.




--All HCEs at Division B will benefit under the plan




--Division A has 50 nonexcludable HCEs and 100 nonexcludable NHCEs.




--Division B has 30 nonexcludable HCEs and 50 nonexcludable NHCEs.




--No employees work for both Division A and B.




A. 21


B. 35


C. 40


D. 63


E. 105

C




In order to satisfy the ratio percentage test under IRC §410(b), the plan’s ratio percentage must be at least 70%. Only the 30 HCEsfrom Division B will benefit under the plan. The total number of HCEs from both divisions is 80 (50 from Division A + 30 from DivisionB). Thus, 37.50% of the HCEs are benefiting (30 benefiting HCEs / 80 total nonexcludable HCEs). Consequently, 26.25% of theNHCEs must benefit (70% of HCE benefiting ratio of 37.50% = 26.25%).




The total number of NHCEs from both divisions is 150 (100 from Division A + 50 from Division B). 26.25% of 150 = 39.38. Round upto the next whole number to conclude that 40 of the NHCEs must benefit. These figures can be confirmed based on the coverage testworksheet:




HCE NHCE total


coverage test 80 150 230


benefiting group 30 40 70


coverage Ratio 30/80= 40/150


37.5% 26.67%


ration percentage 26.67%/37.50%=71.12%

Based on the following information, determine the number of non excludable employees in the coverage testing group:




--The total number of employees is 100.




--Participants must be employed on the last day of the plan year in order to receive an allocation.




--No employee in the table below is counted more than once.




EE who havnt met requirements 15


noben EE who term les than 500 hrs 5


EE excluded by job description 10




A. 70


B. 80


C. 85


D. 90


E. 100

B




Employees who have not met the plan’s eligibility requirements may be excluded. Nonbenefiting participants who terminated with lessthan 500 hours of service may also be excluded since the plan has a last day requirement in order to receive a contribution.




Based on the coverage test worksheet:




workforce during year 100


# who dont satisfy age/service -15


# nonbef who term with less than 500 hrs -5


nonexcludable EE 80





Which of the following is/are groups of employees that may be excluded by statute from the coverage testing group under IRC§410(b)?




I. Employees who satisfy the plan's age and service requirements, but are ineligible due to a job category exclusion




II. Employees who fail to satisfy the plan's age and service requirements




III. Nonresident aliens who receive no US source income from the employer




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III

D




Employees who satisfy the plan's age and service requirements, but are ineligible due to a job category exclusion are included in thetesting group as not benefiting.

Which of the following statements regarding coverage testing under IRC §410(b) is/are TRUE?




I. The average benefit test is part of the ratio percentage test.




II. A plan that fails the ratio percentage test may correct the problem by expanding coverage so that the test is satisfied.




III. If there are no NHCEs in the coverage testing group, the plan will fail to satisfy the coverage requirements.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

B




There are two minimum coverage tests under IRC §410(b): the ratio percentage test and the average benefit test. The averagebenefit test is not part of the ratio percentage test. If there are no NHCEs in the coverage testing group, the plan is deemed to satisfycoverage for the plan year. However, if there is at least one NHCE in the coverage testing group, this rule does not apply.

All of the following groups of employees may be excluded by statute from coverage testing under IRC §410(b), EXCEPT:




A. Leased employees




B. Collective bargained employees




C. Employees who have not met the minimum age and service requirements




D. Nonresident aliens




E. Nonbenefiting participants who terminated with less than 500 hours of service

A




Leased employees are not necessarily excludable employees for coverage testing. Coverage testing rules are applied by therecipient by treating the leased employees as part of the recipient employer’s workforce. Thus, leased employees must be includedin coverage testing unless they are excludable from coverage testing for another reason.

Which of the following is/are acceptable correction methods for a plan that fails to satisfy minimum coverage testing under IRC§410(b)?




I. An employer may correct a coverage failure by adopting a corrective amendment up to 9½ months after the close of the plan year.




II. In a defined contribution plan, contribution amounts that have already been allocated may be adjusted and the contribution amountreallocated after a coverage failure has been identified.




III. One way to correct a coverage failure is to expand the group of NHCEs who benefit under the plan.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

C




In a defined contribution plan, contribution amounts that have already been allocated may not be adjusted and reallocated after acoverage failure has been identified. This is not a permissible correction method

Which of the following statements regarding plan qualification under IRC §401(a) is/are TRUE?




I. Coverage testing must be performed separately for the 401(k) portion, the 401(m) portion and the 401(a) portion.




II. Employees who have not satisfied the plan’s age and service requirements for the portion being tested are included as notbenefiting.




III. The benefiting group includes only the employees who benefit under the disaggregated portion of the plan being tested.




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

C




Employees who have not satisfied the plan’s age and service requirements for the portion being tested are excluded from thecoverage testing for that portion of the plan.

Based on the following information, determine the ratio percentage under IRC §410(b):




EE HCE Benefiting


A Yes Yes


B no Yes


C Yes no


D Yes Yes


E no Yes


F no no




A. 0.00%


B. 25.00%


C. 67.00%


D. 75.00%


E. 100.00%

E




Based on the coverage test worksheet:




HCE NHCE Total


coverage test 3 3 6


Benefiting Group 2 2 4


Coverage ratio 2/3=66.67 2/3=66.67


Ration Percentage 66.67/66.67=100.00

Based on the following information, determine the allocation to Participant C for 2015:




--The plan is a calendar year profit sharing plan with an effective date of January 1, 2015.




--The allocation formula is pro rata based on compensation.




--There are no forfeitures for 2015.




--The plan is not top-heavy.




--The 2015 contribution totals $60,000.




--The IRC §401(a)(17) compensation limit in 2015 is $265,000.




Eligible Participants 2015 compensation


A $350,000


B $70,000


C $50,000
D $30,000




A. $0


B. $6,000


C. $7,229


D. $7,895


E. $8,000

C




Compensation is limited to $265,000 in 2015. Total compensation is $415,000 ($265,000 + $70,000 + $50,000 + $30,000).Participant C’s allocation is $7,229 (($50,000 / $415,000) * $60,000)

All of the following statements regarding plan compensation used for a profit sharing allocation are TRUE, EXCEPT:




A. The definition of compensation must be included in the plan document if the allocation is based oncompensation.




B. The definition of compensation must be the same as that used for calculating employer matchingcontributions.




C. The definition of compensation may be IRC §414(s) compensation.




D. The definition of compensation may exclude commissions.




E. The definition of compensation may be IRC §415 compensation.

B




The plan may use different definitions of compensation for different plan purposes (e.g., matching allocations and profit sharingallocations).

All of the following are annual additions under IRC §415, EXCEPT:




A. Catch-up contributions


B. Forfeiture allocations


C. Employer matching contributions


D. After-tax employee contributions


E. QNECs

A




IRC §415 limitations are applied to the annual additions allocated to the participant’s account for the limitation year. Annual additionsare:




• Employer contributions [including elective deferrals under a 401(k) plan, matching contributions and nonelective contributions];




• Forfeitures allocated to the participant’s account; and




• Employee contributions (i.e., after-tax employee contributions).




Loan repayments, investment earnings and catch-up contributions are not included in annual additions.

All of the following statements regarding excess annual additions are TRUE, EXCEPT:




A. Failing to limit annual additions may disqualify a plan.




B. Excess annual additions may be refunded to the extent they are vested employer nonelective profit sharingcontributions.




C. Excess annual additions may be reallocated to other participants.




D. Excess annual additions may not remain in the participant’s account.




E. Excess annual additions may be allocated to a suspense account.

B




Failure to limit annual additions is a plan disqualification defect. The correction methods regarding excess annual additions areoutlined in EPCRS and include reallocation to other participants or to a suspense account. They may not remain in a participantsaccount for future allocations and they may not be refunded to the employer

Which of the following is/are conditions that may be imposed on a participant in order to receive a contribution allocation?




I. Work 501 hours during a short plan year


II. Work 1,000 hours during a short plan yearIII. Work 1,000 hours during a calendar year




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

E




A common accrual requirement in a defined contribution plan is that the participant must satisfy a minimum hours-of-servicerequirement for the plan year. This minimum requirement may not exceed 1,000 hours. Because an hours requirement for allocationpurposes is a plan design issue and is not required by statute or regulation to be in the plan, there is no legal rule that demandsproration of the hours requirement for short plan year. Thus, a plan may impose a 501 or even 1,000 hours of service requirementduring a short plan year in order for participants to receive a contribution allocation

All of the following statements regarding deduction deadlines are TRUE, EXCEPT:




A. A calendar year corporation’s initial deduction deadline is March 15th.




B. A calendar year sole proprietor’s initial deduction deadline is April 15th.




C. A calendar year sole proprietor may extend the deduction deadline to December 31st.


D. A calendar year corporation may extend the deduction deadline to September 15th.




E. A calendar year partnership’s intial deduction deadline is April 15th.

C




The extended deadline for a sole proprietor is October 15 for a calendar year filer.

Based on the following information, determine the contribution deadline for a deductible contribution made for the 2015 plan year:




--The plan is a calendar year plan.


--The plan sponsor is an LLC taxed as a corporation.


--The corporate return is not on extension.




A. December 31, 2015


B. March 15, 2016


C. April 15, 2016


D. September 15, 2016


E. October 15, 2016

B




The contribution deadline applicable to an LLC taxed as a corporation is 2½ months following the end of the plan year; in thisexample March 15, 2016.

Based on the following information, determine the maximum deductible contribution for the following profit sharing plan for 2015:




--The plan was effective January 1, 2015.


--The plan has a nonintegrated allocation formula.


--The employer sponsors no other plans in 2015.


--The IRC §401(a)(17) compensation limit in 2015 is $265,000.




Eligible EE 2015 comp


President $35,000


Employee A $50,000


Employee B $30,000




A. $46,000


B. $51,000


C. $77,500


D. $86,250


E. $107,500

D




The compensation limit in 2015 is $265,000. Total compensation for deduction purposes is $345,000 ($265,000 + 50,000 + 30,000).The maximum deductible contribution is $86,250 ($345,000 * 25%).

All of the following statements regarding nondeductible contributions are TRUE, EXCEPT:




A. A 10 percent excise tax may apply to nondeductible contributions.




B. Nondeductible contributions may be carried forward and deducted in succeeding taxable years.




C. Nondeductible contributions are not allocated to plan participants until they are deducted.




D. Form 5330 is filed to pay the excise tax on nondeductible contributions.




E. Tax-exempt organizations are not subject to an excise tax on nondeductible contributions.

C




An employer contribution is still allocable to the plan participants whether or not it is currently deductible.




The other statements are true. A 10 percent excise tax may apply to nondeductible contributions. Nondeductible contributions may becarried forward and deducted in succeeding taxable years. Form 5330 is filed to pay the excise tax on nondeductible contributions.Tax-exempt organizations are not subject to an excise tax on nondeductible contributions.

Based on the following information, determine the participant’s vested balance as of December 31, 2015:




The plan year is the calendar year.


--The plan is using the counting-hours method to determine vested service.


--A year of service for vesting purposes is a plan year with at least 1,000 hours.


--Years of service before age 18 are excluded. ---Participant A’s date of birth is March 15, 1994 and date of hire is December 15, 2009.


---Participant A worked 1,000 hours in plan years 2010 through 2014, but fewer than 1,000 hours in 2015.


--The vesting schedule is the six-year graded schedule.The vesting computation period is the plan year.




Account Account Balance


Elective Contribution $1,750


Matching Contribution $525


Employer Nonelect con $3,250


QMAC $450
Rollover $5,750




A. $7,950


B. $9,190


C. $9,460


D. $10,970


E. $11,725

C




Participant A has five years of service (2010, 2011, 2012, 2013 and 2014). However, years of service before age 18 are excluded forvesting purposes. Participant A attained age 18 in 2012. Thus, Participant A has three years of vesting service for plan purposes(2012, 2013 and 2014). This translates to 40% vesting, applicable to the matching and employer nonelective sources. The vestedbalance is $1,750 + ($525 *.40) + ($3,250 * .40) + $450 + $5,750 = $9,460.

Based on the following information, determine the participant’s vested balance:




--The participant has not attained NRA.


--The participant met the plan’s eligibility requirement of one year of service.


--The plan is a nonsafe harbor 401(k) plan.




Years of vested service 2


Plan vesting Schedule three-year


Elect con account balance $10,000


EE matching account balance $5,000


EE profit sharing balance $40,000


Rollover account balance $4,000




A. $10,000


B. $14,000


C. $19,000


D. $54,000


E. $59,000

B




With a three-year cliff vesting schedule, participants are 0% vested in their first two years and achieve 100% vested after three yearsof service. Since the participant has only two years of vested service, the participant is 0% vested in all employer contributionaccounts. Elective contribution and rollover accounts are always 100% vested. Thus, the participant’s vested balance is $14,000($10,000 elective contribution balance + $4,000 rollover balance).

All of the following years of service may be disregarded for vesting purposes, EXCEPT:




A. Years of service before the participant reached age 18




B. Years of service during which the participant declined to make mandatory contributions




C. Years of service before the effective date of the plan




D. Years of service during which the participant declined to make elective contributions in a 401(k) plan




E. Years of service before a one-year break in service, if the participant was vested prior to the break

D




Years of service cannot be disregarded simply because a participant declines to make elective contributions to a 401(k) plan. Yearsof service before a one-year break in service may temporarily disregarded until after the participant completes another year ofservice, however, the one-year break-in-service rule does not affect an employee’s vesting percentage in the benefits alreadyaccrued (i.e., benefits accrued before the break in service). An employee does not forfeit his or her vested rights simply because heor she has a break in service.

Which of the following statements regarding break-in-service rules for vesting purposes is/are TRUE?I. Service to avoid a break in service must be credited for employees on unpaid maternity or paternity leave.II. Service to avoid a break in service must be credited for employees suspended due to misconduct.III. Service to avoid a break in service must be credited for employees on Family and Medical leave.






A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

C



Service to avoid a break in service need not be credited for employees suspended due to misconduct.

All of the following statements regarding the cash-out distribution method are TRUE, EXCEPT




A. The entire vested balance must be distributed.




B. The participant must consent to distributions of more than $5,000.




C. A cash-out distribution may trigger an immediate forfeiture.




D. The cash-out rules apply to in-service withdrawals.




E. The plan must comply with repayment rules for participants who are rehired.

D




The cash-out rules do not apply to in-service withdrawals

Which of the following is/are events that require full vesting of a participant’s benefit?I. Plan entry after satisfying a 15-month eligibility requirementII. Attaining the plan’s NRAIII. Merging of the plan with another plan of the employer




A. I only


B. III only


C. I and II only


D. II and III only


E. I, II and III

C




Eligibility requirements that exceed one year and attainment of Normal Retirement Age (NRA) are both events that require immediate100 percent vesting of account balances; however, plan mergers do not usually require full vesting of account balances.

Based on the following information, determine the forfeiture allocation for Participant D for the 2015 plan year:




--The plan is a calendar year profit sharing plan and is the only plan of the employer.




--Forfeitures are allocated in proportion to compensation to participants who worked at least 1,000 hours in the plan year.




--Participant B terminated on February 15, 2015.




--Participant B was 40% vested with a total account balance of $6,250.




--Participant B received a lump sum distribution of $2,500 in October, 2015.




--The plan is not top-heavy and satisfies coverage requirements.




EE Hours Worked Compensation


A 2,040 $200,000
B 350 $30,000
C 2,040 $40,000
D 2,040 $45,000
E 2,040 $35,000




A. $352


B. $482


C. $527


D. $804


E. $878

C




Participant B’s total account balance was $6,250. Participant B’s distribution of $2,500 represents 40% of Participant B’s totalaccount balance. The remaining 60% of Participant B’s account balance is $3,750 ($6,250 - $2,500).




Participant B is not eligible for an allocation. The remaining compensation totals $320,000 ($200,000 + $40,000 + $45,000 +$35,000). The allocation to Participant D is ($45,000 / $320,000) x $3,750 = $527.

Based on the following information, determine the forfeiture allocation for Participant D for the 2015 plan year:




--The plan is a calendar year profit plan and is the only plan of the employer.




--Forfeitures are allocated in proportion to compensation to participants who worked at least 1,000 hours in the plan year.




--Participant B terminated on August 15, 2015 and was 20% vested.




--Participant B received a lump sum distribution of $1,000 in November, 2015.




--The forfeiture reallocation totals $4,000.




--The plan is not top-heavy and satisfies coverage requirements




EE hours worked compensation


A 1,500 $180,000


B 900 $40,000


C 1,500 $30,000


D 1,500 $25,000


E 1,500 $24,000




A. $83


B. $97


C. $334


D. $386


E. $418

D




Participant B is not eligible for an allocation. The remaining compensation totals $259,000 ($180,000 + $30,000 + $25,000 +$24,000). The allocation to Participant D is $4,000 / $259,000 * $25,000 = $386

All of the following schedules satisfy minimum vesting standards for defined contribution plans, post-PPA, EXCEPT:




A. Seven-year graded (0% until year 3, then 20% each year thereafter)




B. Five-year graded (20% each year)




C. Two-year cliff (0% until year 2, then 100%)




D. Six-year graded (0% until year 2, then 20% each year thereafter)




E. Three-year cliff (0% until year 3, then 100%)

A



A defined contribution plan may satisfy the legal vesting requirements for employer contributions under one of two statutory minimumschedules: three-year cliff vesting or six-year graded vesting. A plan may also design a customized cliff or graded vesting schedule,provided that participants are no less vested at any point in time than they would be under the statutory cliff or graded vestingschedules.




Under three-year cliff vesting, the employee becomes 100 percent vested once he or she is credited with three years of service. Priorto his or her completion of the third year of service, the employee’s vesting percentage is zero. Under six-year graded vesting, theminimum vesting percentages per year are as follows:




one year of service - 0% vesting


two years of service - 20% vesting


three years of service - 40% vesting


four years of service - 60% vesting


five years of service - 80% vesting


six years of service - 100% vesting




Because the seven-year graded (0% until year three, then 20% each year thereafter) does not meet the minimum vestingpercentages for years two through six, the seven-year graded schedule is not permissible in a defined contribution plan, post-PPA

Which of the following statements regarding remedial amendment periods is/are TRUE?




I. The remedial amendment period allows practitioners a period of time to update the plan document to reflect current plan operationsdue to law changes.




II. Amendments that are required by law may be made retroactively during the remedial amendment period.




III. Remedial amendment periods do not apply to a newly established plan.




A. I only


B. III only


C. I and II only


D. II and III only


E. I, II and III

C




Remedial amendment periods do apply when a new plan is adopted or amended. These remedial amendment periods permit the plansponsor to submit the plan to the IRS for favorable determination letter and, if the IRS requires modifications to the plan oramendment language, to make those changes retroactively.

All of the following statements regarding protected benefits under IRC §411(d)(6) are TRUE, EXCEPT:




A. An optional form of benefit is any option that relates to the form or timing of a plan distribution.




B. A plan is not required to protect the optional forms of benefit with respect to a rollover contribution.




C. Rights and features that are not optional forms of benefit are not protected benefits.




D. All optional forms of benefit are protected benefits.




E. Ancillary benefits that are not optional forms of benefit are not protected benefits.







D




Not all optional forms of benefit are protected benefits. For example, annuity options may be eliminated anytime from a profit sharingplan or stock bonus plan without violating the anti-cutback rules.

All of the following statements regarding terminated plans are TRUE, EXCEPT:




A. The final Form 5500 is filed for the year the plan terminated.




B. The IRS can retroactively disqualify a plan that has been terminated.




C. A terminating plan must be amended to be in full compliance with current legislation.




D. Advance notice to employees is not required to terminate a profit sharing plan.




E. Terminating plans are not required to request a determination letter from the IRS.

A




The final Form 5500 is filed for the year in which the assets have been completely distributed. In the interim, between the plantermination effective date and the final distribution of assets, regular filings must continue.

Which of the following statements regarding ERISA §204(h) notices is/are TRUE?




I. A small plan is required to give the ERISA §204(h) notice no fewer than 30 days before the effective date of the ERISA §204(h)amendment.




II. A 401(k) plan is not subject to the ERISA §204(h) notice requirements.




III. An ERISA §204(h) notice must be provided to all plan participants and beneficiaries.




A. I only


B. II only


C. I and II only


D. II and III only


E. I, II and III

B




An ERISA §204(h) notice is due no fewer than 15 days before the effective date of the amendment for a small plan filer. It is onlyrequired to be provided to all applicable individuals (defined as each participant whose future rate of accrual is reasonably expectedto be significantly reduced).

All of the following statements regarding Form 5500 audit requirements are TRUE, EXCEPT:




A. An accountant would be considered independent of the plan if the accountant is a fiduciary of the plan.




B. An accountant would not be considered independent of the plan if the accountant is a service provider forthe plan.




C. The accountant should consider whether benefit payments were made in accordance with plan terms.




D. For any year in which the plan has large plan filing status, a written opinion of an independent qualifiedpublic accountant must accompany the 5500 filing.




E. The audit requirement also applies to a small plan filer, unless certain conditions are satisfied.

A




Plan audits must be performed by a qualified public accountant who is independent of the plan. As a general rule, an accountantwould not be independent of the plan if the accountant is a service provider, fiduciary or participant in the plan. The accountant alsomust be independent of the plan sponsor. This means the accountant does not have a financial interest in the plan sponsor nor is anemployee of the plan sponsor.

Which of the following is/are included in a Form 5500 filing for a large plan filer only?I. Schedule CII. Schedule GIII. Schedule H




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III



E




Where applicable, Schedules C, G and H are included a Form 5500 filing for large plan filers only. These Schedules are not requiredfor small plan filers.

All of the following are requirements a plan must meet in order to qualify for filing Form 5500-SF, EXCEPT:




A. The plan must cover fewer than 100 participants as of the first day of the plan year.




B. The plan must meet eligibility requirements for the small plan audit waiver on the basis of qualifying assets.




C. The plan must invest at least 95 percent of plan assets in investments that have a readily ascertainable fairmarket value.




D. The plan may hold no employer securities at any time during the plan year.




E. The plan may not be a multi employer plan.

C




In order to qualify for filing Form 5500-SF, the plan must invest 100 percent of its assets in investments that have a readilyascertainable fair market value.




The other statements regarding requirements a plan must meet in order to qualify for filing Form 5500-SF are true. The plan mustcover fewer than 100 participants as of the first day of the plan year, it must meet eligibility requirements for the small plan auditwaiver on the basis of qualifying assets, it may hold no employer securities at any time during the plan year and it may not be amultiemployer plan.

Which of the following statements regarding Title I Form 5500 requirements is/are TRUE?




I. SIMPLE 401(k) plans are exempt from Title I Form 5500 filing requirements.




II. SEPs are exempt from Title I Form 5500 filing requirements.




III. Nonelecting church plans are exempt from Title I Form 5500 filing requirements.




A. I only


B. III only


C. I and II only


D. II and III only


E. I, II and III

D




SIMPLE IRA plans are exempt from the Form 5500 filing requirements, but this exemption does not apply to a SIMPLE 401(k) plan. ASIMPLE 401(k) plan is still an employee pension benefit plan, like any other 401(k) plan, and must file the annual report.




SEPs are exempt from Form 5500 reporting requirements as long as they provide participants with a copy of the model plan (or acopy of the SEP document if the plan does not use the IRS model SEP form) and certain other disclosure items. Governmental andnonelecting church plans are exempt from Form 5500 filing requirements.

All of the following statements regarding the filing deadlines for Form 5500 for tax years ending prior to December 31, 2015 areTRUE, EXCEPT:




A. Form 5500, without extension, is due January 15th for plan year ending June 30th.




B. Form 5500, with extension, is due October 15th for plan year ending December 31st.




C. Form 5500, without extension, is due June 30th for plan year November 30th.




D. Form 5500, without extension, is due August 31st for terminated plan with final assets distributed onJanuary 10th.




E. Form 5500, with extension, is due August 15th for plan year ending October 31st

A




The filing deadline for the Forms 5500, 5500-SF and 5500-EZ is the last day of the seventh month following the close of the planyear. Thus, for a plan year ending June 30th, Form 5500, without extension, is due January 31st. The maximum extension is 2½months. For a terminated plan, the date on which final distribution of assets occurs ends the plan year for reporting purposes,creating a short plan year. The return is due on the last day of the seventh calendar month following that date, unless an extension isgranted.




Note: Effective for tax years beginning after December 31, 2015, the Form 5500 maximum extension deadline has been expandedfrom a 2½ month extension to a 3½ month period. That means for calendar plan years, beginning with the 2016 Form 5500 filing, themaximum filing deadline will move from October 15, 2017 to November 15, 2017.

All of the following statements regarding Form 5500 penalties are TRUE, EXCEPT:




A. The IRS has the authority to impose penalties for late or deficient Form 5500 filings.




B. The DOL has the authority to impose penalties for late or deficient Form 5500 filings.




C. The DOL may impose a civil penalty of up to $2,500 per day with no limit.




D. The DOL may impose a penalty on a large plan for a missing auditor's report.




E. Under the DFVC Program, plan sponsors may voluntarily file late returns in exchange for a significantlyreduced late filing penalty.

C




Both the IRS and DOL have authority to impose penalties for late or deficient Form 5500 filings. The IRS penalty is $25 per day with amaximum penalty of $15,000 (applicable after 600 days) with respect to the filing required for a plan year. The DOL may impose acivil penalty of up to $1,100 per day with no limit.

All of the following are qualifying plan assets for purposes of the small plan audit waiver, EXCEPT:




A. Qualifying employer securities




B. Assets held by a regulated financial institution




C. Registered mutual funds




D. Coins held in a safe deposit box of a bank




E. Annuity contracts

D




Coins held in a safe deposit box are not qualifying plan assets

Which of the following actions is/are violations of the ASPPA Code of Professional Conduct?




I. Performing a client's ADP test in a careless manner without gathering sufficient data




II. Being convicted of a misdemeanor due to traffic violation




III. Providing a plan amendment to a client after December 31, knowing that the client intends to back date the document




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II and III

C




Performing work for a client in a careless manner without gathering sufficient data is a violation of the professional integrity portion ofASPPA’s Code of Professional Conduct which states that an ASPPA member shall perform professional services with honesty,integrity, skill and care.




Although not advised, being found guilty of a misdemeanor that is not financially-related does not violate ASPPA’s Code ofProfessional Conduct. Pleading guilty or being found guilty of any financially-related misdemeanor or any felony (regardless of thenature of the crime) is a violation of the professional integrity portion of ASPPA’s Code of Professional Conduct.




Providing a documentation to a client with knowledge that the client intends to back date the document is a violation of the “control ofwork product” portion of ASPPA’s Code of Professional Conduct which states that an ASPPA member shall not perform professionalservices when the member has reason to believe that they may be used to violate or evade the law.

Which of the following actions is/are acceptable in accordance with the ASPPA Code of Professional Conduct?




I. Recommending that a client change the profit sharing allocation formula in a plan that is administered by another firm




II. Discussing a specific participant's investment elections with an unrelated investment advisor




III. Discussing with a client the fees paid by other clients that the ASPPA member services




A. I only


B. II only


C. I and III only


D. II and III only


E. I, II, and III

A




Discussing a specific participant's investment elections with an unrelated investment advisor is a violation of the participant’sconfidentiality if the participant has not given permission for you to discuss the information with the unrelated investment advisor.Discussing with a client the fees paid by other clients that the ASPPA member services is a violation of one client’s confidentiality ifthat client has not given permission for you to discuss the information with another client.

All of the following statements regarding ASPPA’s Code of Professional Conduct are TRUE, EXCEPT:




A. An ASPPA member may perform professional service involving a potential conflict of interest if certainconditions are satisfied.




B. The ASPPA Code of Professional Conduct must be prominently displayed in each ASPPA member’s office.




C. An ASPPA member may use membership titles and credentials only in accordance with ASPPA’s Code ofProfessional Conduct.




D. An ASPPA member may provide opinions and advice only when qualified based on education, training orexperience.




E. An ASPPA member must disclose to a client all sources of direct or indirect compensation received withrespect to services performed for such client.

B




ASPPA members are not required to display the ASPPA Code of Professional Conduct in their offices.

Which of the following statements regarding ASPPA’s Code of Professional Conduct is/are TRUE?




I. Working for clients who have conflicting interests may be acceptable under ASPPA's Code of Professional Conduct if certainconditions are satisfied.




II. Precautions should be taken to ensure that professional communications are appropriate to the circumstances and the intendedaudience.




III. Refusing to provide conversion data to a client's new service provider violates ASPPA's Code of Professional Conduct.




A. I only


B. III only


C. I and II only


D. II and III only


E. I, II and III

E




Working for clients who have conflicting interests is acceptable if the member’s ability to act fairly is unimpaired, full disclosure ismade and both clients agree to continue the relationship. Refusing to provide conversion data to a client's new service provider is aviolation of the “courtesy and cooperation” portion of ASPPA’s Code of Professional Conduct.

All of the following statements regarding money purchase pension plans are TRUE, EXCEPT:




A. The IRS imposes a nondeductible excise tax on the employer for failure to make the required contributionunder IRC §412.




B. The formula for determining the amount of the contribution and the formula for allocating the contributionmay be different.




C. The annual contribution must be determined by a formula specified in the plan document.




D. Participant loans may be permitted. E. Hardship withdrawals may be permitted.

E




Pension plans (e.g., money purchase pension plans) do not permit hardship withdrawals.