DC3 - 2014 Practice Exam

A. Permitted disparity may not be used when allocating ESOP contributions.

B. An ESOP may not include a 401(k) elective deferral feature.

C. In some cases, the tax deductible contribution to a leveraged ESOP may exceed the 25% deductible limit.

D. ESOPs are subject to the top-heavy rules.

E. The plan sponsor of a leveraged ESOP may be able to deduct the amount of loan interest.

A. For IRC §404 deduction purposes, elective deferrals are included in eligible compensation.

B. Top-heavy minimum contributions are based on compensation from entry date for mid-year entrants.

C. The plan’s definition of compensation must be limited to $200,000 (as indexed).

D. Compensation for allocation purposes may be limited to a specific dollar amount as defined in the plan document.

E. Compensation for self-employed individuals is defined as earned income.

A. $97,000

B. $100,000

C. $102,000

D. $105,000

E. $120,000

A. 5.25%

B. 7.50%

C. 10.50%

D. 21.00%

E. 30.00%

A. The direct rollover notice need not be provided for total distributions under $200.

B. Failure to provide the direct rollover notice is subject to $100 penalty per violation, $50,000 maximum per calendar year.

C. The direct rollover notice must be provided no less than 30 days before the distribution.

D. The direct rollover notice need not be provided for rollovers made to 403(b) or 457 plans.

E. The direct rollover notice must include an explanation of the tax consequences of not electing to make the rollover.

A. An ASG may exist even if there is no common ownership between the entities involved.

B. Only professional service corporations are affected by the ASG rules.

C. If an ASG exists, all employees of the affected employers are treated as a single employer for purposes of applying the coverage rules under IRC §410(b).

D. When requested, the IRS will issue a determination letter regarding ASG status.

E. An ASG consists of organizations identified as an FSO, an A-Org, a B-Org or a management group.

A. Investment manager hired by the plan sponsor

B. Custodian of plan assets without discretionary investment authority

C. Plan’s accountant

D. Recordkeeper hired by the sponsor to maintain participant account balances

E. Insurance company providing the investment contract for plan assets

A. A fiduciary may avoid liability for a breach committed by another fiduciary by resigning as a plan fiduciary.

B. A fiduciary may be required to pay the plan any profits earned by the fiduciary through the use of plan assets involved in a breach.

C. A fiduciary that knowingly conceals or does not make a reasonable effort to remedy a breach may be liable for the breach.

D. A fiduciary is personally liable for any breach that he or she directly commits.

E. A fiduciary is generally not liable for any loss resulting from a participant’s investment direction of the assets allocated to his or her account under an ERISA §404(c) plan.

A. The IRS imposes an initial 15% excise tax on the amount involved.

B. The prohibited transaction excise tax is not deductible.

C. The undoing of a prohibited transaction will avoid restoration of losses to the plan.

D. Payment of the excise tax does not relieve the fiduciary of the obligation to correct the transaction.

E. Generally, the IRS will not automatically disqualify the plan.

A. The benefits, rights and features provided under the plan must be made available to employees in a nondiscriminatory manner.

B. Nondiscrimination testing is applied on the basis of the plan year.

C. A defined contribution plan may use a testing method under IRC §401(a)(4) to show that the amount of elective deferrals is nondiscriminatory.

D. IRC §414(s) compensation is used for nondiscrimination testing.

E. Certain plans may be permissively aggregated to satisfy testing under IRC §401(a)(4).

A. A plan may allow for the purchase of whole life insurance if the premiums are less than 50% of the cumulative contributions and forfeitures allocated to the individual participant’s account.

B. Universal life insurance is considered term insurance for purposes of the percentage limitations of the incidental benefit test.

C. In a profit sharing plan, the incidental life insurance limit does not apply to premiums that are paid with contributions that have accumulated in the trust for at least two years.

D. A participant’s death benefit in a defined contribution plan will be the greater of the face value of the life insurance policy or the participant’s vested account balance.

E. Insurance policies held in a participant’s account may not continue to be held in the plan after the participant retires.

A. A fiduciary must satisfy pre-established rates of return in the investment of plan assets.

B. A fiduciary must act solely in the interest of participants and beneficiaries.

C. A fiduciary must comply with the provisions of the plan document.

D. A fiduciary must discharge his duties in a prudent manner.

A. The contribution of property owned by the sponsoring employer to a defined benefit plan

B. The contribution of employer securities to a profit sharing plan as the annual employer contribution

C. A fully secured $10,000 loan from a plan to the sponsoring employer, bearing interest at the current rate of prime plus 2%

D. The late deposit of elective deferrals to a plan

E. The lease, to the sponsoring employer, of a printing press owned by the plan

A. 10.0%

B. 11.5%

C. 14.5%

D. 16.5%

E. 24.5%

A. 0

B. 3,000

C. 3,750

D. 4,000

E. 7,500

A. Motivates employees

B. Shares company growth more directly with employees

C. Common plan type in the marketplace that is simple to administer

D. Used for corporate financing (e.g., a leveraged ESOP)

E. Creates a market for the company shares

A. Age and compensation are factors used in testing for nondiscrimination.

B. Plan year compensation may be used when testing allocations under the current year method.

C. The testing age is usually the plan’s normal retirement age.

D. Average annual compensation must be used when testing allocations under the accrued-to-date method.

E. Each rate group includes only one HCE.

A. A parent is attributed ownership of a business held by the child only if the parent owns more than 50% of that business.

B. An adult child is attributed ownership of a business held by a parent only if the adult child owns more than 50% of that business.

C. In determining ownership interest in a business, both direct ownership and stock attribution apply.

D. A parent is attributed ownership of all businesses of the adult child if attribution requirements are satisfied with regard to at least one of the businesses.

E. Stock attribution rules are different for determining controlled groups than they are for determining ASGs.

A. Leasing organizations often maintain multiple employer plans to better coordinate benefits with recipient employers.

B. Participating employers who maintain a multiple employer plan may have employees in common.

C. A multiple employer plan typically includes participating employers whose benefits are subject to a collectively bargained agreement.

D. A professional employer organization may need to adopt a multiple employer plan to avoid violating the exclusive benefit rule.

E. Participating employers who maintain a multiple employer plan may have common ownership.

A. 2.52%

B. 3.70%

C. 5.40%

D. 8.55%

E. 20.00%

A. $57,000

B. $65,000

C. $72,000

D. $80,000

E. $95,000

A. Both parts of the test, the nondiscriminatory classification test and the average benefit percentage test, must be satisfied.

B. The plan will satisfy the nondiscriminatory classification part of the average benefit test if the classification of employees who benefit satisfies a facts and circumstances test.

C. Each plan of the employer is tested separately for average benefit testing.

D. The nondiscriminatory classification test is satisfied if the coverage ratio is at least 50%.

E. The average benefit percentage test is satisfied if the average benefit percentage is at least 70%.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

A. Distributions consisting solely of employer securities are not subject to mandatory tax withholding rules.

B. Generally, gain on the sale of employer securities is taxed as long-term capital gain.

C. ESOPs are the only plan type that allows distributions in the form of employer securities.

D. Cost basis is the amount included as taxable income when the participant received the distribution of employer securities.

E. Net unrealized appreciation excluded from gross income is not part of the cost basis on the sale of the securities.

A. None

B. Corporations X and Y only

C. Corporations X and Z only

D. Corporations Y and Z only

E. Corporations X, Y and Z

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

A. Only cash distributions may be allowed from the plan, except for rollovers to another plan maintained by the same employer

B. A decedent’s benefits must be payable in full to the surviving spouse unless the spouse has consented to another beneficiary

C. There are no life annuity options in the plan; or if there are, the participant does not elect into them

D. Account balances do not include direct transfers from a plan that was subject to the QJSA requirements

E. Account balances may not be part of a floor-offset arrangement with a defined benefit plan maintained by the employer

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. II only

B. III only

C. I and II only

D. I and III only

E. I, II and III

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. An investment advisor receiving revenue sharing from the plan assets totaling $3,000 per quarter

B. A third party administrator billing the employer directly an annual administration fee of $1,500

C. An actuary providing one-time consulting on a project for $500 paid by the plan

D. A recordkeeper collecting an asset charge of 10 basis points annually, equating to $10,000 paid from the plan

E. An investment advisor billing the employer directly $4,000 for a vendor search for the plan provider

A. II only

B. III only

C. I and II only

D. I and III only

E. I, II and III

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. The employer may only chose to run coverage testing by disaggregating otherwise excludable employees if it is included in the plan document.

B. On a year-by-year basis, a plan may elect to perform coverage testing by disaggregating otherwise excludable employees.

C. On a year-by-year basis, a plan may elect to perform ADP testing by disaggregating otherwise excludable employees.

D. The nonstatutory employees are included in the testing group covering otherwise excludable employees.

E. The otherwise excludable employee disaggregation applies separately to each disaggregated portion of the plan.

A. The documents under which the plan operates will establish the terms of the plan.

B. Every fiduciary and every person who handles plan funds must be bonded.

C. If there is money owed to the plan, the responsible fiduciaries must take reasonable, prudent steps to secure collection of such amounts.

D. The collection of contributions and calculation of benefits are fiduciary responsibilities.

E. A fiduciary must carry out his or her duties solely in the interest of plan participants and beneficiaries.

A. Participants’ allocations are converted into a single life annuity payable at the plan’s testing age.

B. EBAR calculations are not permitted to recognize allocations to the participant in prior years.

C. The allocation that is converted does not normally include earnings that are attributed to the allocation for the current plan year.

D. The interest rate used to convert the allocation into a benefit must be within a range of 7.5% to 8.5%.

E. If a participant’s allocation is limited by IRC §415, the reduced allocation is used to convert the allocation for that participant.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. $ 98,000

B. $103,000

C. $110,000

D. $120,000

E. $124,000

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

A. A grandchild is attributed a grandparent’s ownership in a business.

B. A parent is attributed a child’s ownership in a business.

C. A child is attributed a parent’s ownership in a business.

D. A grandparent is attributed a grandchild’s ownership in a business.

E. A wife is attributed her husband’s ownership in a business.

A. If two plans are permissively aggregated to satisfy the ratio percentage test for coverage, they must also be aggregated for IRC §401(a)(4) testing.

B. Plans may not be permissively aggregated for coverage testing, unless they have the same plan year.

C. If two 401(k) plans are being permissively aggregated to pass coverage, then the ADP test must also be performed on an aggregate basis.

D. When plans are permissively aggregated, the benefiting group is determined by including any employee who benefits under any plan being aggregated.

E. If an employer sponsors a profit sharing plan and a SEP, they may be permissively aggregated to satisfy coverage testing.

A. Non-key employees eligible for a minimum top-heavy contribution

B. Participants who are allocated a QNEC to satisfy nondiscrimination testing in a 401(k) plan

C. Participants eligible for a safe harbor nonelective contribution in a safe harbor 401(k) plan

D. Participants eligible for a discretionary profit sharing contribution

E. Participants eligible for a safe harbor matching contribution in a safe harbor 401(k) plan

A. A plan that benefits employees of more than one QSLOB, may satisfy the reasonable classification test by being tested as an aggregated entity.

B. Plans that are tested on a QSLOB basis may use permissive aggregation with plans maintained by other QSLOBs.

C. Under QSLOB testing, each QSLOB separately determines its coverage testing group.

D. Generally, when determining the average benefit percentage under the average benefit test, only plans maintained by the QSLOB are taken into account.

E. When performing the coverage tests for a plan maintained by a QSLOB, all employees not included in that QSLOB are excludable employees.

A. SEPs and SIMPLE 401(k) plans are exempt from ASG rules.

B. All ASG members are treated as a single employer when identifying HCEs.

C. All ASG members are treated as a single employer when determining IRC §415 limits.

D. Service with all ASG members is considered for vesting purposes.

E. Service with all ASG members is considered for eligibility purposes.

A. None

B. Corporation 1 and Corporation 2 only

C. Corporation 1 and Corporation 3 only

D. Corporation 2 and Corporation 3 only

E. Corporation 1, Corporation 2 and Corporation 3

A. One-half of the self-employment tax

B. Profit sharing contributions for common-law employees

C. Matching contributions for common-law employees

D. Elective deferrals for the self-employed individual

E. Profit sharing contribution for the self-employed individual

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

A. Fail-safe language in the plan document may preclude the use of the average benefit test.

B. All plans included in the test must use the same method of calculating employee benefit percentages: allocation rates or benefit rates.

C. All employees in the coverage testing group (not just the employees who are benefitting under the plan being tested) are taken into account to compute these employee benefit percentages.

D. The employee benefit percentages may not be adjusted by imputing permitted disparity.

E. When calculating the employees’ benefit percentage, all contributions allocated (or benefits accrued) for the plan year are included.

A. An employee who has irrevocably waived participation in the plan is still included when computing the average benefit percentage test.

B. The average benefit percentage test must reflect the employee benefit percentages of all employees in the coverage testing group, regardless of whether they are benefitting in any plan maintained by the employer.

C. Participants who terminate during the year, have completed 500 or fewer hours during the plan year or fail to benefit under the plan may be disaggregated under the otherwise excludable testing option.

D. The coverage testing group for the average benefit percentage test is determined by applying the excludable employee rules as if the plans in the average benefit percentage testing group constitute a single plan.

E. The coverage testing group for average benefit percentage testing of two or more plans with different eligibility requirements must be tested using the least restrictive eligibility requirements.

A. Disclosure of a participant’s salary to another plan participant

B. Use of the QPA designation by a candidate who is awaiting confirmation that they have been awarded the designation

C. A third-party administrator hiding a significant conflict of interest between the plan and the interest of another party

D. A third-party administrator advertising that an enrolled actuary is on their staff, but utilizing the services of an outside actuary

E. Disclosure to the plan sponsor of fees paid to the third-party administrator by a broker that invests the plan assets

A. 1

B. 2

C. 3

D. 4

E. 5

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III