Each of the following is an example of a qualified retirement plan EXCEPT a: A) profit-sharing plan. B) defined benefit plan. C) deferred compensation plan. D) Keogh plan.

Answer: C A deferred compensation plan is considered a nonqualified plan because IRS approval is not required to initiate such a plan for employees. More test answers on https://studyhippo.com/q-bank-unit-11/

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Intro to Personal Finance- Ch. 13- Mutual Funds – Flashcards 73 terms

Candace Young

73 terms

Preview

Intro to Personal Finance- Ch. 13- Mutual Funds – Flashcards

question

For Individuals , stocks and bonds are safer choices than mutual funds because money is pooled from many investors for mutual funds.

answer

FALSE

question

Many people invest in mutual funds through their retirement accounts

answer

TRUE

question

In 2008, investors in the US could choose from more than 25,000 mutual funds

answer

FALSE

question

Mutual funds may carry a risk that they will substantially decrease in value

answer

TRUE

question

Mutual funds provide amateur management

answer

FALSE

question

Most mutual funds are closed-end funds

answer

FALSE

question

An exchange-traded fund has portfolio managers who actively research and select stocks and other securities

answer

FALSE

question

An "A-fund" mutual fund may have a commission as high as 9.5 percent

answer

FALSE

question

Fred wants to invest in a "no-load" fun. This means that the fund has no 12b-1 fees.

answer

FLASE

question

An aggressive growth fund invests in companies with a long history of paying dividends

answer

FALSE

question

The difference between a global stock fund and an international fund is that the global stock fund invests in companies throughout the world, including the US and the international fund invests outside the US

answer

TRUE

question

Stephanie wants to invest in a mutual fund that invests in companies within the same industry. She should put her money into a regional fund.

answer

FALSE

question

A socially responsible fund invests in companies that produce tobacco, nuclear energy, and weapons in order to influence the board to change the companies' mission statements.

answer

FALSE

question

The return for an intermediate US government bond fund should be higher than for a junk bond fund

answer

FALSE

question

A family of funds is a grouping of funds that all invest in bonds or all in stocks

answer

FALSE

question

Open-end mutual funds have managers and closed-end funds do not

answer

FALSE

question

Most managed mutual funds outperform the Standard & Poor's 500 stock index

answer

FALSE

question

A 'good' fund manager has the ability to increase the share value when the economy is good and retain that value when the economy is bad

answer

TRUE

question

If Ryan wants to invest in an S&P 500 index fund, he should not expect his fund to behave differently than the underlying index

answer

TRUE

question

Brenda wants to invest in a fund that will outperform most others. On average, she would be better off to invest in an index fund instead of a managed closed-end fund

answer

TRUE

question

The only way to get reliable information about mutual funds is to pay a fee for it.

answer

FALSE

question

An investment company sponsoring a mutual fund must give potential investors an annual report

answer

FALSE

question

A newspaper will provide more complete coverage of mutual funds compared to other sources

answer

FALSE

question

Many people own mutual funds as part of a 401(k) plan

answer

TRUE

question

A capitol gain distribution is the profit that usually results when investors sell shares that have increase in value

answer

FALSE

question

Cynthia received an IRS Form 1099DIV. This form is sent at the end of each quarter to specify how much she received in dividends and capitol gain distributions

answer

FALSE

question

A higer turnover ratio for a mutual fund can result in higher tax bills

answer

TRUE

question

All of the following are advantages of a mutual fund EXCEPT

answer

C- Loads of up to 8.5 percent

question

What percentage of all mutual funds are closed-end funds?

answer

A- 7 percent

question

Which type of fund has the prices determined by factors of supply and demand like a stock?

answer

A- Closed-end funds

question

Which of the following is a fund that invests in stocks or securities contained in an index?

answer

B- Exchange-traded funds

question

Whose shares are issued and redeemed by the investment company at the request of investors?

answer

E- Open-end funds

question

How is an ETF similar to a closed-end fund?

answer

E- All of the above

question

Which of the following is unique for a closed-end fund?

answer

B- Its value is determined by supply and demand

question

The net asset value is calculated as

answer

D- (current market value of portfolio - liabilities)/number of shares outstanding

question

Many mutual funds charge a commission when they are purchased by investors. These are called:

answer

A- Load funds

question

A load fund is allowed to collect a sales fee as high as

answer

D- 8.5 percent

question

The average load charge for a mutual fund is

answer

C- 3-5 percent

question

The average upfront charge for a no-load mutual funds is

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A- 0 percent

question

A no-load mutual fund

answer

E- Can charge a 12b-1 fee of up to .25 percent of its assets

question

A contingent deferred sales load is known as all of the following EXCEPT

answer

E- all of the above

question

A fee charged to defray the costs of advertising and marketing for a mutual fund is called a _________ fee

answer

B- 12b-1

question

Which of the following is NOT correct about the 12b-1 fee?

answer

D- it needs to be disclosed in the annual report but not in the prospectus

question

Which class of shares charges a commission when shares are purchased?

answer

A- A

question

Which class of shares charges a commission when withdrawals are made during the first five years?

answer

B- B

question

Which class of shares does not charge a sales load or contingent deferred sales fee and charges a higher 12b-1 fee than the other classes?

answer

C- C

question

Which of the following types of stock funds invests in stock issued by companies expecting higher than average revenue and earnings growth?

answer

B- Growth funds

question

Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends?

answer

A- Equity income funds

question

Which of the following stock funds invests in the same companies included in the S&P 500?

answer

C- Index funds

question

Which of the following stock funds invests in stock issued by companies throughout the world outside of the US?

answer

D- international funds

question

Which of the following stock funds invests in stock traded within one area of the world?

answer

E- Regional funds

question

Sally wants to invest in a fund that only invests in stock. Which of the following will meet her needs?

answer

D- Midcap funds

question

Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?

answer

Asset allocation funds

question

Val wants to invest in a fund whose primary objective is to conserve principal, provide income, and provide long-term growth. Which of the following will best meet her needs?

answer

B- Balanced funds

question

An example of a lifecycle fund is a fund that

answer

A- Assists investors with planning for retirement by a specific date

question

Time is an important factor when evaluating a mutual fund for which of the following?

answer

C- the tenure of a fund manager

question

Which of the following is NOT correct?

answer

E- A managed fund will outperform an index fund only 60 percent of the time.

question

Which of the following is NOT a way one can access reliable information about mutual funds on the internet?

answer

C- Review blogs from amateur investors about their favorite mutual funds

question

Professional advisory services provide detailed information on mutual funds. Which of the following is NOT a professional advisory service?

answer

A- Dun and Moody's

question

Professional advisory services provide research on mutual funds in all of the following areas EXCEPT

answer

E- All of the above are included by professional advisory services

question

Sally wants to invest in a mutual fund. The mutual fund must provide a(n)_____ to her.

answer

C- Prospectus

question

Which of the following provides some information about mutual funds for free and more detailed information at a cost?

answer

E- Professional advisory services

question

Which of the following provides a means of monitoring the value of your mutual fund investments, but not as much information as the other options listed to conduct a more complete evaluation?

answer

D- Newspapers

question

Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund's independent auditors?

answer

C-Mutual fund annual report

question

How do mutual funds provide returns to their shareholders?

answer

D- All of the above

question

Cash paid to shareholders that is NOT related to the sale of securities in the fund's portfolio is called

answer

B- Income dividend

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Payments to investors related to the sale of securities in the fund's portfolio are

answer

A- Capitol gain distributions

question

When you sell your shares in a mutual fund, you may receive a profit called

answer

C- Capitol Gain

question

Which of the following is true about mutual funds and taxes?

answer

C- Investment companies are required to send each share holder a year-end statement that specifies how much each received in dividends and capitol gain distribution

question

If you hold mutual fund shares in your Roth IRA, the taxes will be

answer

B- Eliminated

question

A problem with mutual fund is

answer

C- Being required to report reinvestment income dividends and capitol gain distributions on your federal tax return

question

All of the following are valid ways to purchase mutual funds except

answer

E- All of the ways listed are valid

question

Melinda wants to withdraw some money from her mutual fund. Which of the following is NOT an option available?

answer

E- Withdraw all principal and leave interest dividends and capitol gain distributions in the account

STUDY

Balanced Budget Act Civil Law Defined Benefit Plan Fair Labor Standards Act Insurance National Labor Relations Board Short Term Disability Workers Compensation

HR Final Part 2 – Flashcards 81 terms

Patricia Smith

81 terms

Preview

HR Final Part 2 – Flashcards

question

In this type of managed care health insurance plan, there is no deductible, and the nominal fees generally from $5 to $30 per visit depending on the service performed.

answer

Health maintenance organization

question

The benefits of this act are based on a percentage of average weekly earnings and are available for up to 26 weeks.

answer

Federal Unemployment Tax Act

question

In 2010 PBGC paid about ____ in benefits owed to retirees and the surviving beneficiaries because their pension plans could not.

answer

$5.6 billion

question

Which law offers full coverage for retirees, dependent survivors, and disabled persons insured by 40 quarters of payroll taxes on their past earnings or earnings of heads of households?

answer

Social Security Act

question

A recent MetLife survey showed that 73 percent of employees who were highly satisfied with their benefits are also satisfied with their _____.

answer

jobs

question

_____ is not legally required, and, because of unemployment compensation, many firms do not offer it.

answer

Severance pay

question

Which act was enacted to protect the interests of employee-benefit-plan participants and their beneficiaries by requiring the disclosure to them of financial and other information concerning the plan?

answer

question

This law provides that, following a worker's death or divorce, the employee's family has the right to buy group rate health insurance for as long as three years.

answer

Consolidated Omnibus Budget Reconciliation Act

question

Currently, ____ percent of states have workers' compensation laws.

answer

100

question

An individual or group health plan that provides or pays the cost of medical care may not use or disclose ____ except with the consent or authorization of the individual in question.

answer

protected health information

question

Which agency acts as an insurance company, collecting annual premiums from companies with defined-benefit plans that spell out specific payments upon retirement?

answer

question

Which of the following is NOT an area of payment covered by workers' compensation?

answer

Payments to employers while injured workers are recovering

question

The law requiring companies with at least 20 employees to make medical coverage available at group insurance rates for up to 18 months after an employee leaves the job is:

answer

COBRA

question

All state workers' compensation laws share all of the following features except:

answer

a worker's loss is usually covered fully by the insurance program

question

The type of pension plan that offers all employees the same, steady annual credit toward an eventual pension is a:

answer

cash-balance plan

question

The U.S. health insurance system is based primarily on group coverage provided by:

answer

employers

question

HIPPA makes health insurance more portable by which of the following?

answer

Both A and B

question

Which act extended the 1.45% Medicare payroll tax to all wages and self-employment income?

answer

question

Which act covers private-sector employees over age 21 enrolled in noncontributory (100% employer-paid) retirement plans who have one year's service?

answer

ERISA

question

The average retirees gets about ____ percent of his/her retirement income from Social Security.

answer

question

In regard to pensions, employees who have not worked at a company long enough to be ____ are not entitled to any benefits.

answer

vested

question

_____ programs typically provide a core of basic life coverage and then permit employees to choose greater coverage.

answer

Flexible benefit

question

This type of insurance is usually yearly renewable term insurance and typical coverage is one to two times the employee's annual salary.

answer

Group life

question

Money set aside by employers to cover ____ has become the nation's largest source of capital.

answer

pension obligations

question

The "gatekeeper" in a "managed care" health insurance plan is the:

answer

primary care physician

question

When given a choice, employees are moving toward ____ even though they are more expensive, showing that they are willing to pay more for freedom of choice.

answer

PPOs

question

Which of the following is not an approach wisely used to express the cost of employee benefits and services?

answer

National salary index

question

Which of the following should be considered by firms when determining their overall benefit plan?

answer

All of the above

question

The methods for costing benefits include:

answer

All of the above

question

The doctrine of ___ holds that an individual must pay taxes on benefits with monetary value when he/she receives them.

answer

constructive receipt

question

Limiting Medicare payments to what Medicare would have paid for in the absence of a group health plan is another example of what is referred to as:

answer

cost shifting

question

Which act was enacted to make health insurance more "portable" from one employer to another?

answer

HIPAA

question

Generally, employees of non-agricultural, private-sector firms are entitled to benefits for work-related accidents and illnesses leading to temporary or permanent disabilities under:

answer

workers' compensation

question

In this type of managed care health insurance plan, in-network care comes from a specified group of physicians and hospitals, patients can pay extra to get care from outside the network, and there generally is no gatekeeper.

answer

Preferred provider organization

question

What is driving the increasing costs of health care?

answer

Aging population and an increase in obesity

question

In determining the competitiveness of benefits, senior management tends to focus mainly on:

answer

cost

question

In its 2011 benefits survey, the Society of Human Resource Management found that across organizations of all sizes in a variety of industries, the average percentage of salary reflecting the cost of mandatory benefits was:

answer

19 percent

question

The type of private pension plan in which an employer promises to pay a retiree a stated pension is a:

answer

defined-benefit plan

question

The anti-discrimination rule holds that employers can obtain tax advantages only for those benefits that do not discriminate in favor of:

answer

highly compensated employees

question

The 2010 plan intended to reform the U.S. healthcare system is called the:

answer

Patient Protection and Affordable Care Act

question

Employees engaged in this type of strike are afforded the highest degree of protection, and under most circumstances they are entitled to reinstatement after the strike ends.

answer

Unfair labor practice strike

question

Management's objective is to get labor costs per unit of output to a point below that of the ____ at the product-line level.

answer

competition

question

When _____ fail, the union may strike, management may shut down operations, or both parties may appeal for third-party involvement.

answer

contract negotiations

question

_________ is the name of a 2005 break off group from the AFL-CIO.

answer

Change to Win

question

The _____ was organized in 1886 as a group of national craft unions.

answer

American Federation of Labor

question

Which of the following practices by management is not prohibited by law?

answer

Using company time and premises to stress the disadvantages of unionization

question

In win-win, or ____, the goals of the parties are not mutually exclusive.

answer

integrative bargaining

question

A _____ is an alleged violation of the rights of workers on the job.

answer

grievance

question

Under federal law, how much time does a union have as an exclusive representative to reach a contract for the newly organized workers?

answer

12 months

question

What strategy would American managers most likely use to negotiate conflict?

answer

individualism

question

All except which factor made industrial unionization attractive in the 1930s?

answer

the roaring 20s

question

In a ____, employees need not join the union that represents them, but in lieu of dues, they must pay a service charge for representation.

answer

agency shop

question

Among employees who see management as unwilling to share power, more than ___ percent say they would vote for a union.

answer

question

Which of the following is not a way to kick off an organizing campaign?

answer

Management steps in and provides relevant information to the employees.

question

The _____ of the bargaining unit is critical for both the union and employer because it is strongly related to the outcome of the representation election.

answer

size

question

Which Act created the National Labor Relations Board to supervise representation elections and to investigate charges of unfair labor practices by management?

answer

The Wagner Act

question

_____ is when employers seek to avoid unionization by offering workers the wages, benefits, and working conditions that rival unionized firms do.

answer

Spillover effect

question

The first overt union activity in the United States took place in 1794 when the ____ attempted to raise their wages, in reaction to a wage cut by their employers.

answer

Philadelphia shoemakers

question

Fundamentally, labor-management relations are about _____ - who has it and how they use it.

answer

power

question

The role of the line manager in grievance procedures is to know and understand _____, as well as federal and state labor laws.

answer

the collective bargaining contract

question

Which of the following actions in management prohibited by law from participating in?

answer

All of the above

question

The NLRB defines a bargaining unit that reflects the shared interests of the employees involved in a concept called:

answer

community of interest

question

_____ include work stoppages, both lawful and unlawful, such as sit-down strikes, strikes in violation of federal laws, slowdowns, wildcat strikes that occur while a contract is in force, and partial walkouts.

answer

Unprotected strikes

question

Because _____ is most likely to occur the first year or so after the certification, unions will often insist on multi year contracts.

answer

decertification

question

Whenever an organizing drive begins, employees are asked to sign _____ that designate the union as the employees' exclusive representation in bargaining with management.

answer

authorization cards

question

A _____ occurs when parties are unable to move further toward settlement.

answer

bargaining impasse

question

________ occurs when the union has obtained authorization cards from 50% of the employees, and the union asks management directly from the right to exclusive representation.

answer

Card check

question

Actions by the union of withdrawing its labor in support of bargaining demands, including those for recognition or organization, are:

answer

economic strikes

question

Rebel leaders within the AFL who wanted to organize unskilled workers into industrial unions contributed to the emergence of the:

answer

Congress of Industrial Organization

question

Federal-government employees are covered by the:

answer

Civil Service Reform Act

question

During a strike, ____ on streets and sidewalks may be a violation of state law or local ordinances.

answer

profanity

question

Which of the following is used widely by management and labor to settle disputes arising out of and during the term of a labor contract?

answer

Grievance arbitration

question

While mediation assists the parties to reach their own settlement, ____ hears the positions of both and decides on binding settlement terms.

answer

arbitration

question

Under the _____, professional employees cannot be forced into a bargaining unit with nonprofessionals without their majority consent.

answer

Taft-Hartley Act

question

The right of employees to strike in support of their bargaining demands is protected by:

answer

the Landrum-Griffin Act

question

The group of employees eligible to vote in the representation election is termed a:

answer

bargaining unit

question

Many of the fastest-growing unions in the United States represent ____ (more than 51% of all union members)

answer

white-collar professionals

question

The Japanese value _____ and tend to resolve conflict by emphasizing status differences between the parties.

answer

collectivism

question

Distinctive features of the U.S. system compared with other countries includes:

answer

All of the above

question

In win-lose, or _____, the goals of the parties are irreconcilable, or at least they appear that way.

answer

distributive bargaining

question

Among employees who see management as unwilling to share power, more than ___ percent say they would vote for a union.

answer

STUDY

Business Defined Benefit Plan Internal Revenue Code Principles Of Marketing Profit Sharing Plan

BUS100H Final Exam – Flashcards 95 terms

Sarah Taylor

95 terms

Preview

BUS100H Final Exam – Flashcards

question

Employee retirement plans that are deducted from the employee's paycheck

answer

401(k), 403(b), and 457 plans

question

Keeping track of where money has been spent

answer

Accounting

question

When one firm buys another

answer

Acquisition

question

Resources owned by a firm

answer

Assets

question

A financial statement that lists the assets, liabilities, and owners' equity

answer

Balance Sheet

question

A loan to a business or government

answer

Bond

question

The overall value of a brand to an organization

answer

Brand Equity

question

The profit you make when you sell something for more than you paid for it

answer

Capital Gain

question

Assets = Liabilities + Owners' Equity

answer

Accounting Equation

question

Distribution organizations—informally called "middlemen"—that facilitate the movement of products from producer to the consumer

answer

Channel Intermediaries

question

Ownership in a corporation

answer

Common Stock

question

A form of business ownership in which the business is considered a legal entity separate and distinct from its owners

answer

Corporation

question

Borrowing money to make a purchase

answer

Credit

question

Discovering hidden patterns within large amounts of data

answer

Data Mining

question

The number of goods customers are willing to buy

answer

Demand

question

The measurable characteristics of a population. Demographic factors include population size and density, as well as specific traits such as age, gender, and race

answer

Demographics

question

A plan for delivering the right product to the right person at the right place at the right time

answer

Distribution Strategy

question

The management of resources

answer

Economy

question

People who risk their time, money, and other resources to start and manage a business

answer

Entrepreneurs

question

A decision that involves a conflict of values

answer

Ethical Dilemma

question

Resources spent as the result of business operations

answer

Expenses

question

Concerned with finding the best sources and uses of money

answer

Finance

question

The use of debt in a firm's capital structure

answer

Financial Leverage

question

Government efforts to influence the economy through taxation and spending

answer

Fiscal Policy

question

The unrestricted flow of goods and services across international boundaries

answer

Free Trade

question

The total value of all goods and services produced

answer

Gross Domestic Product (GDP)

question

Concerned with maximizing employee performance

answer

Human Resource Management

question

The financial statement that reports the revenues, expenses, and net income

answer

Income Statement

question

The result of creative, intellectual effort (such as books, musical works, inventions, and computer software)

answer

Intellectual Property

question

Claims that outsiders have against a firm's assets

answer

Liabilities

question

A form of business ownership offering both limited liability and flexible tax treatment

answer

Limited Liability Company (LLC)

question

An asset that can quickly be converted into cash with little risk of loss

answer

Liquid Asset

question

The tactics involved in moving products along the supply chain

answer

Logistics

question

Planning, organizing, leading, and controlling resources to achieve the organization's goals

answer

Management

question

Concerned with customer interactions in terms of the value communicated and delivered

answer

Marketing

question

The blend of marketing strategies for product, price, distribution, and promotion

answer

Marketing Mix

question

When two businesses combine to form a single organization

answer

Merger

question

Federal Reserve efforts to shape the economy by influencing interest rates and the supply of money

answer

Monetary Policy

question

A market structure with many competitors selling differentiated products. Barriers to entry are low.

answer

Monopolistic Competition

question

A market structure with no competitors. Most are government sanctioned and regulated

answer

Natural Monopoly

question

A form of business ownership with the fundamental goal of contributing to the community rather than generating financial gain

answer

Nonprofits

question

Transferring work to other businesses in foreign countries

answer

Offshoring

question

A market structure with few competitors. Barriers to entry are typically high

answer

Oligopoly

question

Concerned with the activities involved in producing goods and services

answer

Operations Management

question

Transferring work to other businesses that used to be done internally

answer

Outsourcing

question

How much of something you own

answer

Owner's Equity

question

The money a business pays to its employees

answer

Payroll

question

The money that a business earns in sales (or revenue), minus expenses. Revenue - Expenses = Profit (or Loss)

answer

Profit

question

A market structure with many competitors selling virtually identical products. Barriers to entry are quite low

answer

Pure Competition

question

Distributors that sell products directly to the end users

answer

Retailers

question

The money received from the dale of goods and services

answer

Revenue

question

The obligation of a business to contribute to society

answer

Social Responsibility

question

A form of business ownership with a single owner who usually actively manages the company

answer

Sole Proprietorship

question

A financial statement describing the movement of cash through an organization

answer

Statement of Cash Flows

question

An owner of a corporation

answer

Stockholder

question

The number of goods producers are willing to sell

answer

Supply

question

All the businesses and activities involved in the flow of goods from their raw materials to the final consumer

answer

Supply Chain

question

The group of people who are most likely to buy a particular product

answer

Target Market

question

The ability of goods and services to satisfy consumer "wants"

answer

Utility

question

Distributors that sell products to other businesses

answer

Wholesalers

question

Opening, Agenda, Body, Conclusion

answer

OABC

question

1750-1850, factories replaced artisans, production efficiency, loss of individualized ownership

answer

Industrial Revolution

question

Mid 1800's, industrial titans, dominated their markets (gov. had to step in)

answer

Entrepreneurship Era

question

Early 1900's, refined production process, more specialized jobs, "hard sell" emerged, assembly line

answer

Production Era

question

After WWII, power went to consumers, distinct brands emerged

answer

Marketing Era

question

Present day, goal to build long-term relationships, uses social media

answer

Relationship Era

question

The transmission of information between a sender and a recipient

answer

Communication

question

Economic expansion and contraction (recession/ recovery)

answer

Business Cycle

question

Physical, language, body language, perceptual, organizational, cultual

answer

Types of Communication Barriers

question

Natural resources, capital, human resources, entrepreneurship

answer

Factors of Production

question

Con-artists, fake investments used to pay off other investors

answer

Ponzi Scheme

question

No real product, illegal

answer

Pyramid Scheme

question

Network marketing = direct selling (i.e. Avon)

answer

Multi-level Marketing (MLM)

question

Small units such as individuals, families, businesses, etc

answer

Micro-Economics

question

Country's overall economic dynamics, such as employment rate

answer

Macro-Economics

question

Changes in the cost of living

answer

Inflation

question

Formal written document that defines the ethical standards of an organization and gives employees info to make ethical decisions across a range of situations

answer

Code of Ethics

question

Employees who report their employer's illegal or unethical behavior to either the authorities or media

answer

Whistle-blowers

question

2002 accounting law, derived from the ENRON scandal. States that if financials are not true, you agree to go to jail

answer

Sarbanes-Oxley (SOX)

question

States that you cannot retaliate against a whistle-blower

answer

Dodd-Frank Act

question

Ongoing economic integration and growing inter dependency of countries worldwide

answer

Gloabalization

question

Cross-border trade and investment activities by firms

answer

International Business

question

External (investors, creditors, suppliers), historical costs from past decisions

answer

Financial Accounting

question

Internal (managers, directors), oriented to future costs and decisions

answer

Managerial Accounting

question

Maximize Value of the firm to its owners (stock for public companies)

answer

Corporate Financial Management

question

Relationship between guest & host, Act of being hospitable, Welcoming & entertaining of guests

answer

Hospitality Management

question

supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service

answer

Upstream Partners

question

serve as distribution channels that link the firm and its customers

answer

Downstream Partners

question

set of interdependent organizations involved in the process of making a product or services available for use or consumption (Provides the means by which the firm moves the goods to customers #pipeline)

answer

Marketing Channel

question

buy products from a range of different businesses and sell them to a range of different customers

answer

Wholesale Distributors

question

take legal possession or title of the goods they distribute

answer

Merchant Wholesalers

question

do not take title of the goods they distribute (i.e. real estate agents)

answer

Agent/ Brokers

question

offering is placed in many outlets as possible, convenience (i.e. tobacco, gum, snacks)

answer

Intensive Distribution

question

some intermediaries willing to carry goods are selected

answer

Selective Distribution

question

severely limited distribution (i.e. automakers-keep control of sales and service

answer

Exclusive Distribution

STUDY

Defined Benefit Plan Inflation And Deflation Insurance

annuities, life insurance, retirement, and college savings 78 terms

Clarence Louder

78 terms

Preview

annuities, life insurance, retirement, and college savings

question

annuity

answer

defined as a contract with an insurance company that provides for payments to the annuity owner over the life of the contract term.

question

securities registration

answer

in addition to insurance license, variable annities also require a

question

after tax dollars

answer

most annuities are funded with

question

mortality guarantee

answer

the annuity company guarantees that it will make payments as long as the annuitant lives through a

question

expense guarantee

answer

establishes the maximum they can charge the contract

question

operating expense risk fee

answer

this is deducted from the separate account to protect the company against rising operating expenses

question

death benefit

answer

in the event the contract owner dies during the accumulation period; the beneficiary will then receive the greater of the gross payments made into the contract or the accumulated value at the time of the owners deathe

question

surrender value

answer

an annity can be terminated anytime during the accumulation period for its

question

current value of the assets held in the separate account less any surrender charges

answer

the surrender value is

question

immediate annuities and deferred annuities

answer

the two classifications of annuities are

question

immediate annuity

answer

this can be funded ONLY with a single lump sum payment because the contract begins making payments to the annuitant on the first interval after deposit is received.

question

one payment period after a lump sum deposit into the contract

answer

with an immediate annity payout to the annitant typically begins

question

deferred annuity

answer

is an annity that either is purchased with a single lump sm or is purchased through periodic payments, payout is delayed until the contract is annuitized at some point in the future

question

fixed annuity

answer

annuity has a guaranteed life product- fixed return/payment, guaranteed, company bears investment risk, vulnerable to inflation

question

variable annuity

answer

annuity has variable life products, variable return/payments, not guaranteed, investor bears investment risk, and resistant to inflation

question

lifetime income that will likely keep up with inflation

answer

the annuitants objective with a variable annity is to be provided with a

question

investment management fee, mortality risk fee, expense risk fee, premium taxes, and administrative expenses

answer

these expenses are deducted from the asses or income of the separate account, these additional expenses include the following:

question

investment company act of 1940

answer

this defines the separate account as an account established and maintained by the unsurance company under which income, gains and losses are credited to or charged against the account without regard to toerh income, gains or losses of the insurance company

question

securities act of 1933

answer

the separate account in a variable contract is a pool of securities, much like a mutual fnd. it must be registered under the

question

accumulation period

answer

this begins with the date on which the annuity contract becomes effective and contines until the payout period begins.

question

accumulation unit

answer

this is the accounting measure used to identify the contract owner's interest in the separate accont during the accumulation period

question

forward pricing

answer

new accumulation units are purchased using

question

multiplying the number of accumulation units owned by the value of each accumulation unit

answer

an annuitants interest in a separate account is determed by

question

annuity unit

answer

the annuity period begins at the conclsion of the accumulation period. the accounting measure used in the determination of the payments amounts to an annuitant during the payout referred to as an

question

straight life or life annuity

answer

the option gives the annuitant the highest periodic payment, but carries the most risk. the annuitant receives payments as long as he or she lives. upon the annuitants death, all paymentds end

question

life annuity with period certain

answer

(fixed period)- with this method, periodic payments are made to the annuitant for a specified number of years. if the annuitant dies before the end of the period the remaining payments due will be made in a lump sum or in installments to the beneficiary. the beneficiary will only receive money for however long the contract is

question

unit refund life annuity

answer

this option provides periodic payments during the annitants lifetime. if the annuitant dies prior to receiving an amount equal to the value of the annuity units, the remaining portio will be paid in a lmp sum or instalments to the beneficiary

question

joint and last survivor annuity

answer

with this option payments are made to 2 people. if one annuitant dies, payments ocntinue to be made to the surviving annuiant. this provides the largest promise but is the most expensive (provides the smallest monthly check)

question

combination annuity

answer

this option is a good hedge against inflationand deflation because a protion of the contract pays fixed interest. while the remaining portion could be placed in a variable annuity, which offers inflation protection

question

term insurance and permanent insurance

answer

life insurance policies are contractual agreements between the insurance company and the policy owner that can be classified into two basic types

question

term insurance

answer

covers a specified period of time, typically 5,10, or 20 years. and provides ony a death benefit. this is suitable for those who wish to secure the most death benefit at the least cost

question

permanent insurance

answer

provides a death benefit and an accumulatio of a cash value.

question

death benefits

answer

these are proceeds of the policy to be paid to the beneficiary upon the death of the insured.

question

cash value

answer

this represents the accumulated value that an insrance company will return to the policy owner upon the surrender of the policy

question

premium payment

answer

the feed paid by the policyownder to the insurnce company in exchange for protection

question

31 days

answer

the contract holder has this long to pay back enough of the loan to bring the cash value of the contract positive

question

9 percent

answer

the maximum sales charge allowed on a variable life insurance policy is BLANK computed over a period of up to 20 years

question

free look period

answer

if the life insurance policy is surrendered during the first 45 days, the contract holder will receive a full refund of the premims paid- called

question

interest option

answer

the insurance company holds and invests the proceeds from the policy. the beneficiary receives a guaranteed interest rate from the company and usually also receives any excess interst earned.

question

fixed period option

answer

the beneficiary receives equal installments are regular intervals for a specified time.

question

fixed amount option

answer

the beneficiary receives periodic installments of equal dollar amounts until the proceeds are exhausted. the payets consist of both principal interest and are continued until all the funds have been exhausted

question

life income option

answer

provides for a guaranteed income for the life of the beneficiary. payents are based on the actuarial calcualtions, and the amont is determined by which of the 4 types of life income options is selected

question

straight life

answer

life income option: provides paymets for as long as the beneficiary lvies. payments cease at the beneficiary's death regardelss of the amount paid out

question

cash refund

answer

life income ption: guarantees that the insurance pays out at least the amount of the original proceeds. in the event the beneficiary dies before all monies are received, the balance is paid to a secondary ebenficiary

question

joint and last survivor income

answer

life income option: two beneficiaries receive lifetime income. when the first beneficiiary dies, payments continue uninterrupeted for the remainder of the joint beneficiary's life

question

life settlement

answer

this term refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party investor at a discount to its face value

question

qualified plan

answer

require IRS approval and the dollars invested are before tax dollars

question

nonqualified plans

answer

may discriminated and do not need IRS approval. these are generally after tax dollars

question

deferred compensation

answer

a type of nonqualified plan in which the employer promises to pay compesation to the employee in the fture. plan is authorized under IRS code 457

question

457 b

answer

is a nonqualified tax defereed account that is made available to employees of pblic institutions, such as state and local governments, and to private or nongovernmental tax exempt organizations. THERE IS NO 10% PENALTY ON EARLY WITHDRAWALS MADE BEFORE 59 1/2

question

5,500 younger than 50 or 6,500 if older than 50

answer

the maximum amount an individual can contribute annually to an IRA is

question

70 1/2

answer

contributions to a traditio IRA cannot be made past the age of

question

rollover

answer

describes a cash and or asset contribution to a new IRA with an individual within 60 days of receiving an eligible rollover distribution from an old plan the individual is subject to 20% federal withholding onthe distribution from the old plan

question

transfer

answer

describes a movement of cash and/or assets that takes place directly between the trustee/custodian of an old plan and the trustee of a new plan. by directly transferring the distribution from one custodian to another.

question

6 percent

answer

if an idnividuals IRA contribution exceeds the maximum allowable amont, a penalty is assessed onthe ecvess contribtions every year until it is removed from the plan

question

roth ira

answer

contributions may continue byond age 70 1/2. and all earnin may be withdrawn tax free as long as the acocunt is open for at least 5 years, and if the individual is at least 59 1/2

question

keough plan

answer

qualified plans that are restrictd to self employed individuals. an individual opening this must include any employees if they meet certian requirements: they are at least 21 years old, have been emplyed at least 1 year work a minimum of 1,000 hour sper year, and are not seasonal workers.

question

20 percent

answer

keogh plans allow for a maximum annual contributio of BLANK of pre tax earnings.

question

sep

answer

allow self empolyed individiuals to contribte to their retirement in amounts greater than are available with traditional IRAs. an employer contributes directly to traditional individual retirement accounts for all eligible employees

question

simple plan

answer

is available to smal businesses that employ not more than 100 employees. there is a mandatory employer dollar for dollar match of up to 3%.

question

defied benefit plan

answer

the employer specifies an amount of benefis promised to the employee at his or her normal retirement date. the employer is responsbile for maintaining adequeate fund to provide the promised benefit.

question

defined contribution plan

answer

have become mch more popuar because they are generally more flexibe and les expensive for employers to administer. these plans are focused on contributions rather than on the benefits they will pay out.

question

401 k plan

answer

named after the IRS code that established the gidlines. constribtions are excluded from the individual employees gross income through a payroll dedction up to a specified maximum.

question

vesting

answer

refers to the systematic transfer of ownership between the employer and the employee of the employers matching funds in a qualified retirement plan

question

403 b

answer

this plan is referred to as a tax deferred annuity. is a qualified plan available to employees of certain nonprofit organizations.

question

erisa

answer

governs corporate plans and union plans

question

coverdell

answer

an education savings account. tax payers may deposit up to 2,000 a year.

question

529 plan

answer

plan is a state sponsored college savings plan. no household limit contribution.

question

long term debt instruments

answer

the general account is fundamentally invested in

question

common stocks

answer

in a variable annuity, the issuer invests the monies in the separate account into a securities portfolio that consists mainly of

question

units

answer

the voting rights are similar to mutual funds except instead of the votes being based on shares they are based on the number of

question

sales and marketing expenses, administrative expenses and the other costs of distribution

answer

the sales charge of a variable annuity pays for

question

assets or income of the separate account

answer

an annuity has other expenses that are not part of the sales charge, these epenses are deducted from the

question

separate acounts nav after deducting any sales charges or other fees

answer

accumulation units are purchased at the

question

annuitants age, life expectancy, settlement option selected, and the assumed interest rate

answer

the exchange rate of accumulation units into annuity units is a combination of factors that consider the

question

75 percent of cash value after the policy has been in place for 3 years

answer

variable life policies permit loans against a percentage of the policy's cash value, the insurance company must allow a loan of a minimum of

question

cash value of the policy minus any outstanding loans or unpaid interest charges

answer

the surrender value in a life insurance plan is the

question

conversion privilege

answer

policyowners of life insurance have the right to exchange one form of permanent insurance policy for another type of permanent policy

STUDY

Defined Benefit Plan Finance Personal Finance Profit Sharing Plan

personal death ch. 18 54 terms

Dennis Jennings

54 terms

Preview

personal death ch. 18

question

For the average individual, which one of the following statements is most likely correct regarding retirement?

answer

I need to save whatever I can, even if it's a small amount, to help cover my retirement costs.

question

What is true of retirement planning?

answer

I should update my retirement plan periodically

question

what are some truths about retirement planning?

answer

You can expect to spend about 16 to 30 years in retirement. It's never too early to begin planning for retirement. You should not let your 45th birthday roll by without a comprehensive retirement plan. Retirement planning has both emotional and financial components.

question

What is the first step of retirement planning?

answer

analyze your current assets and liabilities.

question

How do you find your net worth?

answer

subtracting your liabilities from your assets.

question

When a lender uses your house as collateral to buy an annuity for you from a life insurance company, it is called:

answer

mortgage life insurance

question

You can get a reverse mortgage annuity if:

answer

your mortgage is largely or completely paid off.

question

During a divorce, pension benefits are generally divided between the spouses primarily based on the:

answer

length of marriage

question

In a marriage that lasts more than 15 years, there's generally a ____________ split of the marital assets.

answer

50-50

question

Which statement is correct regarding retirement living expenses?

answer

The exact amount of money you'll need is impossible to predict

question

Which one of the following expenditures for retirees is most likely to increase?

answer

health care

question

Which one of the following expenditures for retirees is most likely to decrease?

answer

clothing expenses

question

Which one of the following expenditures for retirees is most likely to decrease?

answer

federal income taxes

question

Which type of housing is preferred by most persons who are approaching retirement?

answer

present home

question

Which of the following is a tip from retirement specialists on how to uncover hidden taxes and other costs of a retirement area?

answer

Retirement specialists recommend all of these actions to uncover hidden taxes and costs.

question

Which one of the following is the most widely used source of retirement income?

answer

company pension plans

question

Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age?

answer

defined-benefit plan

question

What are the two most popular personal retirement plans?

answer

Keogh accounts and individual retirement accounts

question

Which retirement plan is specifically designed for self-employed individuals and their employees?

answer

Keogh plan

question

An annuity in which you receive an income for the rest of your life, but no payments are made to anyone after your death is called:

answer

straight life annuity

question

Which type of annuity gives more income per dollar of outlay than any other type?

answer

straight life annuity

question

Once you retire, the first step in stretching your retirement income is to make sure that you are:

answer

receiving all of the income to which you are entitled.

question

In respect to your federal income taxes, which one of the following may you have to do during retirement, even if you did not have to do so prior to retiring? (Assume you have both pre- and post-retirement income.)

answer

File semi-annual tax returns in April and October

question

Which one of the following is a disadvantage associated with Social Security retirement income?

answer

Earned income partially offsets benefits

question

Beverly Foster is planning for her retirement. She has determined that her car is worth $10,000, her home is worth $150,000, her personal belongings are worth $100,000, and her stocks and bonds are worth $300,000. She owes $50,000 on her home and $5,000 on her car. What step in the retirement planning process is Beverly completing?

answer

Analyzing her current assets and liabilities

question

Nancy Moore is planning for her retirement. She guesses that by the time she retires her mortgage will be paid off on her home. She expects she will pay $600 a month on food and that her medical expenses will be $400 a month. She also estimates that she will spend $400 a month on things that she enjoys like traveling, going to concerts, reading and other similar activities. What step in the retirement planning process is Nancy completing?

answer

Estimating her spending needs

question

Rebecca Murphy is planning for her retirement. She has done some checking and thinks she will get about $1,025 a month from Social Security. She also thinks her pension plan will pay her about $1,125 per month. In addition, she has some personal retirement accounts that she thinks will pay her $500 per month. What step in the retirement planning process is Rebecca completing?

answer

Evaluating her planned retirement income

question

Karen Endicott is planning for her retirement. She knows that after she retires she will no longer need her own single family dwelling. She plans on buying a condominium in Chicago, close to the bus and train line and close to a grocery store. What step in the retirement planning process is Karen completing?

answer

Evaluating her retirement housing

question

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Janice completing?

answer

Developing a balanced budget based on her retirement income

question

What is most likely to be an individual's single biggest asset?

answer

home

question

When should you apply for Social Security?

answer

3 months before you retire

question

What happens to your Social Security income if you retire early?

answer

There is a permanent reduction of 5/9 of one percent for each month that you retire early.

question

if you work after age 65, your Social Security benefit will increase by one-fourth of one percent for each month you delay retirement up until what age?

answer

question

As its retirement plan contribution, Aaron Copeland's employer has been buying shares of the company's stock for Aaron's benefit. What type of retirement plan does Aaron most likely have?

answer

stock bonus plan

question

The contribution Billy Freniere's employer makes to his retirement plan depends on the profits of the company. What type of retirement plan does Billy have?

answer

profit-sharing plan

question

Sarah Logan is a professor at a public university. Her employer makes nontaxable contributions to a plan in her name and reduces her salary by the same amount. What type of retirement plan does Sarah have?

answer

403(b) plan

question

Ben Carmichael has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible as his employer does not offer a retirement plan. What type of individual retirement account does he have?

answer

Traditional IRA

question

Jeremiah Brown has been making contributions into an individual retirement account for his retirement. His contributions are not tax deductible but his earnings accumulate tax free. What type of individual retirement account does he have?

answer

Roth IRA

question

Bruce Willis has been making contributions into an individual retirement account on behalf of his nonworking wife. What type of individual retirement account is this?

answer

spousal IRA

question

Sam Waterston has been making contributions into an individual retirement account to help pay for his children to go to college. Which type of account is he most likely using?

answer

Coverdell Education Savings Account

question

Which is correct with respect to life expectancy?

answer

Women have a longer life expectancy than men.

question

Which of the following is typically a characteristic of a defined benefit plan?

answer

Employer funded with federal rules setting the amounts that employers must contribute

question

Which of the following is typically a characteristic of a defined contribution plan?

answer

No federal guarantee of benefits

question

Which one of the following is not a typical characteristic of a defined benefit plan?

answer

Employee required contributions

question

Which one of the following is not a typical characteristic of a defined contribution plan?

answer

Guaranteed formula-based benefit

question

Which one of the following is not a private source of retirement income?

answer

social security

question

Which of the following is a feature of an Education IRA (or Coverdell Education Savings Account)?

answer

Tax-deferred interest and earnings 10% early withdrawal penalty waiver when money is used for higher-education Annual limit on individual contributions Non-deductible contributions

question

Social Security covers what percent of all U.S. workers?

answer

question

According to the 2012 Trustees Report, in what year is it projected that the funds available for paying Social Security benefits will be exhausted at current benefit and tax rates?

answer

2033

question

What percent of Americans ages 65 to 74 are still in the workforce?

answer

question

People born after 1928 need at least how many quarters of coverage to qualify for Social Security benefits?

answer

question

The full Social Security benefit for a spouse is what percent of the retired worker's full benefit?

answer

question

Which of the following is considered a tax-sheltered annuity plan (TSA)?

answer

401k, Section 403b, and Section 457 plans

question

Your right to at least a portion of the benefits you have accrued under an employer pension plan is called:

answer

vesting

STUDY

Defined Benefit Plan Universal Life Insurance

DC-3 – Flashcards 175 terms

Sienna Rogers

175 terms

Preview

DC-3 – Flashcards

question

T/F: A multiple ER plan applies coverage testing under IRC 410(c) separately for each unrelated ER.

answer

question

T/F: A multiemployer plan is maintained under a collectively bargained agreement between an EE organization and more than one unrelated ER.

answer

question

T/F: A multiple ER plan is one adopted by two or more ERs where at least two of the participating ERs are not members of the same related group.

answer

question

T/F: A multiple ER plan, sponsored by the leasing organization, may allow all the leasing organizations recipient organizations to participate.

answer

question

T/F: Substantially full-time service means 1,500 hours in a 12-month period (or 75% of the customary hours in that job position, if less).

answer

question

T/F: Whether the recipient organization has the right to hire or fire an individual is a relevant factor in the primary direction or control test in determining whether the individual is a leased employee.

answer

False. The right to hire or fire is not a relevant factor in determining primary direction or control. It is, however, relevant in determining the common law employer and may indicate that the individual is a common law employee of the recipient, and not a leased employee.

question

T/F: Benefits, contributions and compensation from all ER's participating in a multiple ER plan sponsored by a leasing organization would be aggregated for each participant's account from both the leasing organization and the recipient organization for computing the IRC 415 limit.

answer

question

T/F: YOS with both the leasing organization and the recipient organization are aggregated if they both are participating ER's in the same multiple employer plan.

answer

question

T/F: The leased EE is included in the recipient and the leasing organization's single ER plan for HCE determination.

answer

question

T/F: A multiple ER plan, sponsored by the leasing organization, must perform coverage testing separately for the leasing organization and the recipient organization.

answer

question

1.1 All of the following are conditions for an individual to be considered a leased EE, EXCEPT: A. The recipient and leasing organization must have an agreement covering the services of the individual. B. The individual must be providing services on a substantially full-time basis for at least one year. C. The recipient must have primary direction or control over the individual's services. D. The leasing organization must be the common law ER of the individual. E. The individual must be covered by the leasing organization's plan.

answer

question

1.2 Which of the following statements regarding the treatment of leased EE's in the recipient's plan is/are TRUE? I. They are treated as EE's for the purposes of applying the nondiscrimination tests under IRC 401(a)(4), 401(k) and 401(m). II. They are treated as EE's for purposes of determining who are HCE's. III. They may not participate in an ESOP. A. I only B. II only C. I and II D. II and III E. I, II and III

answer

E. Leased EE's are treated similarly to EE's for nondiscrimination purposes, but it appears to be the IRS's view that leased employees may not participate in an ESOP maintained by the recipient company or any member of its controlled group.

question

1.3 Which of the following statements regarding the leasing organization's multiple ER plan is/are TRUE? I. Only one Form 5500 is filed regardless of the number of recipients participating. II. Contributions from both the leasing organization and the participating recipients are aggregated to determine the IRC 415 limit. III. Contributions made by the leasing organization and the participating recipients are aggregated then prorated, based on the number of leased EE's, to the organization for deduction purposes. A. I only B. II only C. I and II D. II and III E. I, II and III

answer

C. Statement I and II are true. Statement III is false. Each participating ER may deduct the amount contributed by such organization.

question

1.4 All of the following are relevant factors in determining if the recipient has primary direction or control over services of a leased EE, EXCEPT: A. Whether services must be performed by a particular person. B. Whether services must be performed in the order or sequence set by the recipient. C. Whether the individual is subject to supervision by the recipient. D. Whether the recipient has the right to hire or fire the individual. E. When the individual is to perform services.

answer

D. It is NOT relevant whether the recipient has the right to hire or fire the individual.

question

1.5 All of the following statements regarding multiple ER plans are TRUE, EXCEPT: A. The plan must apply the minimum age and service eligibility requirements as if each ER were participating in a single-ER plan. B. The plan must consider each unrelated ER separately for purposes of coverage testing under IRC 410(b). C. The plan must consider each unrelated ER separately for purposes of ADP testing. D. Each ER must recognize service for vesting purposes without considering service performed for any other participating ER. E. Annual additions attributable to all participating ER's must be considered when determining an individual's maximum annual addition.

answer

question

T/F: All corporations are taxed on their earnings at the corporate level and not at the shareholder level.

answer

F. An S corp is taxed at the individual shareholder level, not the corporate level.

question

T/F: A sole-prop files a separate tax return to report earned income.

answer

F. The earned income for a sole proprietorship is reported on the individual's tax return, not a separate return for the proprietorship.

question

T/F: A QSLOB who meets the different industry's safe harbor will have met the administrative scrutiny test.

answer

question

T/F: A sole-prop's earnings are reduced by 100% of the SE tax when determining earned income.

answer

F. The earnings are reduced by 1/2 of the SE tax.

question

T/F: An LLP may be a nonprofit organization.

answer

F. LLPs must be organized as FOR profit entities.

question

T/F: The separate line of business must satisfy a 50-EE requirement, a notice requirement and an administrative scrutiny requirement to be a QSLOB.

answer

question

T/F: Each QSLOB must be tested separately for all annual compliance testing.

answer

F. The ER may elect to test on a QSLOB basis for coverage testing under IRC 410(b) (and thereby nondiscrimination testing under IRC 401(a)(4), 401(k) and 401(m)). TH testing, as well as the application of the IRC 415 limits, among other things are performed on an ER-wide basis.

question

T/F: A plan must satisfy the nondiscriminatory classification test on an ER-wide basis first before testing on a QSLOB basis.

answer

question

T/F: Compensation that may be used for plan purposes, for EE's of a C-Corp, is Form W-2 compensation.

answer

question

T/F: Compensation that may be used for plan purposes, for a partner of a partnership, is Form W-2 compensation.

answer

F. The partner's compensation for plan purposes will be his or her earned income.

question

2.1 All of the following statements regarding business entity types are TRUE, EXCEPT: A. A sole-prop is an unincorporated business owned by only one person. B. A partnership is an unincorporated business owned by more than one individual. C. An LLP must be treated as a partnership for federal tax purposes. D. S-corp income flows to the shareholders and is taxed as if the shareholders were partners. E. A C-corp is taxed as a corporation.

answer

C. An LLP may elect to be taxed as a partnership or as a corporation.

question

2.2 Based on the following information, determine the net earned income for Partner A: - Partner A owns 30% of partnership - The partnership has net income, before the profit sharing contribution, of $450,000 - The partnership contributes $50k to the plan for nonpartner EE's - Partner A's SE tax is $9,000 - Partner A receives a PS allocation equal to 5% of comp

answer

B. 110,000

question

2.3. All of the following statements regarding SE individuals are TRUE, EXCEPT: A. A qualified plan may cover a SE owner as if that individual were an EE. B. Compensation for plan purposes is W-2 wages. C. Pre-tax elective contributions are included in compensation in determining the maximum deductible ER contribution under IRC 404. D. A limited partner will not necessarily derive any earned income from a partnership. E. Earned income is not treated as currently available until the end of the taxable year.

answer

B. Plan compensation for a SE individual is earned income, not W-2 wages.

question

2.4 All of the following SH tests may be used to satisfy the QSLOB administrative scrutiny test, EXCEPT: A. Mergers and acquisitions B. ADP C. Maximum or minimum benefits D. Statutory E. Industry segment

answer

B. The ADP SH is not a QSLOB SH. There are six QSLOB SH. 1. Statutory 2. Different Industries 3. Mergers & Acquisitions 4. Industry Segment 5. Average Benefits 6. Max/Min Benefits

question

2.5 All of the following statements regarding QSLOBs are TRUE, EXCEPT: A. They are treated as a separate line of business for vesting. B. They are treated as a separate line of business for coverage. C. They are treated as a single ER for eligibility. D. They are treated as a separate line of business for nondiscrimination. E. They are treated as a separate line of business for IRC 415.

answer

E. Testing for IRC 415 is performed as a single ER not on a QSLOB basis.

question

T/F: A parent subsidiary controlled group exists if the companies are connected through at least 50% stock ownership.

answer

F. The companies must be connected by at least 80% of stock ownership to satisfy the parent-subsidiary requirements.

question

T/F: A brother-sister controlled group exists if either the common ownership or the effective control test is satisfied.

answer

F. Both the common ownership and effective control tests must be satisfied for a brother-sister controlled group to exist.

question

T/F: Attribution between spouses does not apply if the couple is childless.

answer

F. For the spousal exception from attribution to apply, the individuals must not have direct ownership in each other's businesses, they must not participate in the management of each other's businesses, no more than 50% of the gross income of the businesses may be derived from passive investments, and the spouse's ownership interest may not be subject to disposition restrictions. In addition, whether the individuals reside in a community property state may affect the ability to satisfy the exception.

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T/F: Attribution from a parent to a minor child applies only if the parent owns more than 50% of the business.

answer

F. Attribution applies to minor children regardless of the amount owned by the parent.

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T/F: Company A and Company B are a controlled group. The workforces of both companies are considered when testing each company's plan for coverage requirements.

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T/F: A financial institution is considered a service organization because it provides a service of lending money.

answer

F. A financial institution is not a service organization.

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T/F: In order for A-Org group to exist, the A-Organization must have at least a 10% ownership interest in the FSO.

answer

F. While an A-Org group must have some ownership in an FSO, there is no minimum % requirement.

question

T/F: If an FSO is a corporation, it always must be a professional service corporation for affiliated service group rules.

answer

F. If an FSO is a corp, it need only be a professional service corp if it is part of an A-Org group. This requirement does not apply to B-Org groups.

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T/F: If two or more entities are deemed to be an affiliated service group, they do not need to be tested together for top-heavy purposes as long as each is not top-heavy on its own.

answer

F. Plans must be aggregated for TH purposes.

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T/F: If two or more entities are deemed to be an affiliated service group and each entity sponsors its own plan, each plan must pass coverage.

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T/F: For purposes of determining any type of affiliated service group, ownership is attributed from a grandchild to a grandparent, but not from a grandparent to a grandchild.

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3.2 All of the following conditions are necessary to avoid spousal attribution controlled group purposes, EXCEPT: A. The spouse must not have any direct ownership in the business. B. The spouse must not be a director or EE of the business. C. The spouse must not participate in the management of the business. D. The spouse must not inherit the business upon death of the business owner. E. NO more than 50% of the business' gross income may be derived from passive investments.

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question

3.3 All of the following statements regarding attribution for controlled group purposes are TRUE, EXCEPT: A. Ownership is attributed from husband to wife unless the business is wholly owned by the husband and certain requirements are met. B. Ownership is attributed from a minor child to a parent. C. Ownership is attributed from an adult child to a parent if the parent owns more than 50% of the corporation. D. Ownership is attributed from a grandparent to a grandchild if the grandchild owns more than 50% of the corporation. E. Ownership is attributed from a father-in-law to a son-in-law.

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3.4 All of the following IRC sections consider controlled group members as a single-ER, EXCEPT: A. Eligibility and coverage (IRC 410) B. Deduction (IRC 404) C. Top-heavy (IRC 416) D. Vesting (IRC 411) E. Annual additions (IRC 415)

answer

B. Generally, for deductibility purposes, controlled group members are not treated as a single-ER. If the members participate in the same plan, they may be treated as a single-ER.

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3.5 All of the following statements regarding affiliated service groups are TRUE, EXCEPT: A. An FSO can be part of both an A-Org group and a B-Org group. B. An FSO of an A-Org group must be a professional service organization. C. An A-Organization must be a service organization. D. A B-Organization need not be a service organization. E. An A-Organization must have some ownership in the FSO.

answer

B. FSOs in an A-Org group must be professional service organizations only if they are corporations. If the FSO is a partnership or sole proprietorship, this rule does not apply.

question

3.6 All of the following are effects of being an affiliated service group, EXCEPT: A. An employee's service with all group members is credited when determining plan eligibility. B. Plans must satisfy coverage requirements considering all employees in the affiliated service group. C. HCE status is determined by looking at the ownership in each entity separately. D. Annual additions for all plans in the group are aggregated to determine if the IRC 415 limits have been exceeded. E. An EE's service with all group members is credited when determining vesting percentages.

answer

C. HCE status is determined by treating the ASG members as a single-ER.

question

3.7 All of the following regarding attribution in determining affiliated service groups are TRUE, EXCEPT: A. Ownership interest is attributed between spouses. B. Ownership interest is attributed from parent to adult child only if the parent owns more than 50% of the company. C. Ownership interest is not attributed between siblings. D. Ownership interest is attributed from grandchild to grandparent. E. Ownership interest is not attributed from grandparent to grandchild.

answer

B. Ownership is attributed from parent to child no matter the age-the adult reference in the answer was a red herring. Do not confuse the attribution under IRC 318 used for ASG rules with that of IRC 1563 used for controlled group determinations.

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3.8 All of the following activities would be considered management functions, EXCEPT: A. Supervisory roles B. Hiring EE's C. Investing 401(k) plan assets D. Setting EE compensation E. Business planning

answer

C. The law does not define management functions. However the term should be interpreted under common business practices. Investing 401(k) assets would not be a management function. It would be a role for the plan trustee.

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T/F: IRC 415 compensation must include elective deferrals to a 401(k) plan.

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T/F: The average percentage of total compensation that is considered for NHCE's must be at least 70% of the average percentage of total compensation considered for HCE's in order for the definition of compensation to satisfy IRC 414(s).

answer

F. If the definition of compensation does not satisfy one of the IRC 414(s) SH, the average percentage of total compensation that is considered for HCE's cannot exceed the average percentage of total compensation for NHCE's by more than a de minimus amount.

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T/F: The plan's definition of compensation used for allocating contributions must satisfy the nondiscriminatory definition of compensation under IRC 414(s).

answer

F. The IRC 414(s) compensation must be used to determine if the contributions are nondiscriminatory. However, a plan is not required to use a definition of compensation that satisfies IRC 414(s) in calculating the amount of contributions provided to the plan.

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T/F: IRC 414(s) compensation must include elective deferrals to a 401(k) plan to avoid testing that definition for nondiscrimination.

answer

F. Elective deferrals may be excluded from the definition of IRC 414(s) compensation as a SH, so long as all elective deferrals (i.e., 401(k), 403(b), Roth and 125 Plan) are treated the same.

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T/F: IRC 415 compensation must be used to determine HCE's.

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T/F: IRC 414(s) compensation must be used to determine Key EE's.

answer

F. IRC 415 compensation must be used to determine Key EE's.

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T/F: The IRC 415 compensation must not include tips, depending on how IRC 415 compensation is determined.

answer

F. IRC 415 compensation may include some tips and generally do include cash tips over $25.

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T/F: Designated Roth contributions are included in IRC 415 compensation.

answer

T. Care must be taken that designated Roth contributions are not counted twice due to how these are reported on Form W-2.

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T/F: Excluding nontaxable fringe benefits from IRC 415 compensation is a safe harbor modification to IRC 414(s) compensation, meaning the resulting definition will not need to be tested for nondiscrimination purposes.

answer

F. None of the definitions include nontaxable fringes. They only include taxable fringe benefits.

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T/F: IRC 415 compensation is based on the plan year.

answer

F. IRC 415 compensation is based on a limitation year, which may or may not be the same as the plan year.

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4.1 All of the following statements regarding IRC 414(s) compensation are TRUE, EXCEPT: A. A plan using a SH definition of IRC 414(s) compensation for nondiscrimination testing need not perform the compensation ratio test. B. A plan using a nonsafe harbor definition of IRC 414(s) compensation for nondiscrimination testing must apply such definition consistently for all participants. C. A plan may meet the safe harbor definition of 414(s) compensation by including 401(k) elective deferrals and excluding 125 plan elective deferrals. D. A plan may use a 12-month period other than the plan year for purposes of determining IRC 414(s) compensation. E. A plan may use a rate-of-pay definition of compensation for IRC 414(s) purposes.

answer

C. The treatment of deferrals (including those for 401(k) and 125 plans) must be consistent, either all included or all excluded, for the definition to meet the SH requirements.

question

4.2 All of the following exclusions are deemed reasonable for defining IRC 414(s) compensation, EXCEPT: A. 20% of regular compensation B. Bonuses C. Overtime D. Expense allowances E. Fringe benefits

answer

A. Percentages of compensation are not deemed reasonable exclusions for IRC 414(s) purposes.

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4.3 All of the following are included in compensation under IRC 415, EXCEPT: A. Elective deferrals B. Expense reimbursements paid under an accountable plan C. Bonuses D. Overtime E. Commissions

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4.4 Based on the following information, determine the participant's IRC 415 compensation: - ER sponsors a 401(k) plan that allows designated Roth contributions. - The plan excludes overtime for allocation purposes. - The participant's taxable income, not including elective deferrals, is $58,000. - The participant defers $4,000 as pre-tax elective deferrals and $4,000 as designated Roth contributions. - The participant defers $500 into the ER's IRC 125 plan. - The participant's overtime compensation totals $3,000. A. $58,000 B. $59,500 C. $62,500 D $66,500 E. $69,500

answer

C - Don't include Roth because it's already included in income!

question

4.5 Which of the following statements regarding the calculation of the ER deduction is/are TRUE? I. In the case of a short taxable year, the deduction limit for a DC plan is applied to aggregate participant compensation paid for the short period. II. A short taxable year results in a prorated compensation dollar limit under IRC 401(a)(17). III. A short plan year does not directly affect the DC deduction limit because that deduction limit is based on participant compensation for the ER's taxable year. A. I only B. II only C. I and II only D. II and III only E. I, II and III

answer

question

4.7 All of the following describe when a plan's definition of compensation is subject to nondiscrimination testing, EXCEPT: I. The plan defines IRC 414(s) compensation as IRC 415 compensation excluding elective deferrals to a cafeteria plan and including elective deferrals to a 401(k) plan. II. The plan defines IRC 414(s) compensation as IRC 415 compensation excluding commissions for HCE's only. III. The plan defines IRC 414(s) compensation as IRC 415 compensation excluding overtime. A. II only B. III only C. I and II only D. I and III only E. I, II and III only

answer

D. A plan may use IRC 415 compensation and exclude an item of compensation that applies only to HCEs when it defines compensation for IRC 414(s) nondiscrimination purposes.

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4.8 Based on the following information, determine the combined plan deduction: - The ER sponsors a PS and DB plan. - The DB plan is not covered by the PBGC. - The ER makes a contribution to the defined benefit plan in the amount of $250,000 which meets the minimum funding requirements. - The ER makes a contribution to the PS plan of $30,000. - Compensation for all eligible EE's is $600,000 A. $30,000 B. $36,000 C. $150,000 D. $250,000 E. $280,000

answer

question

T/F: To be excludable under the annual coverage testing method, an employee must be excludable for the entire plan year.

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question

In order for a plan to pass the nondiscriminatory classification test, what tests must it pass?

answer

1. Reasonable classification test 2. Nondiscriminatory classification ratio test

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T/F: A plan with an NHCE concentration percentage of 70 percent will have a higher safe harbor percentage than a plan with an NHCE concentration percentage of 80 percent.

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question

T/F: A plan with a coverage ratio percentage that is less than the safe harbor percentage fails the nondiscriminatory classification ratio test.

answer

F. This type of plan could still pass the nondiscriminatory classification test if the coverage ration percentage satisfies the unsafe harbor percentage and the plan passes the facts and circumstance test.

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T/F: When calculating the ABP, both employer contributions and elective deferrals are included.

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T/F: Permissive aggregation might be used when one plan fails coverage on its own but could pass when aggregated with another plan.

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T/F: If an employee is part of two or more disaggregated groups during a plan year, each group must take into account all allocations made to the employee's account during the plan year.

answer

F. Each disaggregated group generally takes into account only benefits accrued or allocations made while the EE is a member of that group.

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T/F: A plan must satisfy either the nondiscriminatory classification test or the ABP test to satisfy the average benefit test.

answer

F. A plan must pass both the nondiscriminatory classification test AND the ABP test in order to satisfy the Average Benefit Test.

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T/F: If NHCEs are excluded from the plan, the plan is deemed to satisfy coverage requirements.

answer

F. If there are NO NHCEs in the coverage testing group, the plan is deemed to satisfy coverage requirements. This is different from excluding NHCEs from participating in the plan altogether.

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T/F: Leased employees are part of the recipient employer's workforce for coverage testing purposes.

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5.1 All of the following are reasonable classifications with respect to the average benefit test, EXCEPT: A. Hourly paid employees B. Salary paid employees C. Janitors D. Employees named Joe Smith E. Employees working in Maryland

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5.2 All of the following statements regarding the ABP test are TRUE, EXCEPT: A. The NHCE actual benefit percentage is the average of the employee benefit percentages for each NHCE in the coverage testing group. B. Only employees who are benefiting are considered when determining the employee benefit percentages. C. Elective deferrals are considered employer contributions and are, thus, included when determining employee benefit percentages. D. The employee benefit percentages may be determined based on allocation rates or benefit rates. E. Compensation used to determine employee benefit percentages must satisfy IRC 414(s)

answer

B. All EE's in the coverage testing group are considered, not just those that are benefiting.

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5.4 All of the following statements regarding permissive aggregation for coverage testing are TRUE, EXCEPT: A. Plans must have the same plan year to be permissively aggregated. B. A plan may not be included in more than one group of aggregated plans for coverage testing purposes. C. A qualified plan under IRC §401(a) is not allowed to take into account a SEP to demonstrate that it passes coverage. D. An employee must meet the minimum age and service requirements for all plans in a permissively aggregated group to be considered a nonexcludable employee. E. Plans that are permissively aggregated for coverage must be aggregated for nondiscrimination purposes.

answer

D. If the plans being aggregated have different age and/or service requirements, the excludable EE's are determined based on the lowest age and service requirement.

question

5.5 Based on the following information, determine the maximum number of HCEs that may benefit to pass the ABP test. - The coverage testing group consists of 70 NHCEs and 30 HCEs. - Of the 70 NHCEs, 50 have a benefit percentage of 9 percent, ten have a benefit percentage of 4 percent and the other ten do not benefit under the plan. - Each HCE either has a benefit percentage of 15 percent or does not benefit under the plan. A. 10 B. 12 C. 20 D. 24 E. 30

answer

question

5.6 All of the following statements regarding testing otherwise excludable employees separately for coverage purposes are TRUE, EXCEPT: A. Separate testing may be done on a year-to-year basis. B. If the average benefit test is used for statutory employees, it must also be used for the otherwise excludable employees. C. Employees with more than one year of service are not considered otherwise excludable employees in plans with a two-year eligibility condition, unless they are not age 21. D. The 401(k) component of the plan may use the otherwise excludable option even if the 401(m) component of the plan does not. E. Plans that use the otherwise excludable option for coverage purposes must also use it for nondiscrimination testing.

answer

B. Statutory EE's may be tested using the ratio percentage test while otherwise excludable employees may be tested using the average benefits test and vice versa.

question

T/F: If contributions, benefits or availability of BRFs are discriminatory, a corrective amendment may be adopted within 9½ months after the close of the plan year.

answer

question

What is the only type of nondesign-based safe harbor defined contribution plan?

answer

Uniform points plan.

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T/F: A rate group consists of a single HCE and each NHCE who has an equal or greater allocation rate or accrual rate.

answer

F. A rate group is established for each HCE. However, there may be more than one HCE in a rate group if the HCE (not being tested) has an equal or greater allocation rate or accrual rate than the HCE being tested. The rate group consists of the HCE and each participant (HCE and NHCE) ho has an equal or greater allocation rate or accrual rate.

question

T/F: If plans are aggregated to satisfy the coverage tests under IRC §410(b), they must be aggregated to satisfy the nondiscrimination tests under IRC §401(a)(4).

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question

T/F: If two or more plans are permissively aggregated for nondiscrimination testing, then the nondiscriminatory classification tests must be applied as if the plans were a single plan.

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T/F: For purposes of satisfying the gateway contribution test, each NHCE who benefits under the plan must receive an allocation of at least 5 percent of IRC §415 compensation.

answer

F. The lowest allocation rate for any NHCE who benefits under the plan must be at least equal to the lesser of one-third of the highest allocation rate for any HCE or 5 percent of IRC 415 comp.

question

T/F: Age-based plans automatically satisfy nondiscrimination testing since every participant has the same EBAR.

answer

F. Age-based plans are designed to satisfy nondiscrimination purposes under this premise, but the plans do not automatically pass. For example, participant EBARs could vary due to IRC 415 limitations or TH minimum contributions.

question

T/F: Cross-tested defined contribution plans may not use the safe harbor approach to satisfying nondiscrimination under IRC §401(a)(4).

answer

question

T/F: A plan must benefit at least one NHCE to satisfy nondiscrimination requirements.

answer

F. An ER with only HCEs, or where the NHCEs are excludable for coverage testing, may still satisfy nondiscrimination requirements.

question

T/F: Rate groups must satisfy the average benefit test.

answer

F. Rate groups can satisfy either the ratio percentage test or the average benefits test.

question

6.1 All of the following statements regarding nondiscrimination testing under IRC 401(a)(4) are TRUE, EXCEPT: A. A design-based safe harbor plan is deemed to be nondiscriminatory. B. A plan that provides an allocation that is a uniform percentage of compensation is a design-based safe harbor plan. C. A plan that provides an allocation that is a uniform dollar amount to each participant is a nondesign-based safe harbor plan. D. Design-based safe harbor plans must use a definition of compensation for allocation purposes that satisfies IRC §414(s). E. A uniform points plan is a nondesign-based safe harbor plan.

answer

C. A plan that allocates a uniform dollar amount to each participant is a design-based SH plan and is deemed to be nondiscriminatory.

question

6.2 None of the following provisions affect a plan's ability to rely on the IRC §401(a)(4) safe harbors, EXCEPT: A. Multiple entry dates B. Imposing a last day requirement for allocation purposes C. Imposing an hours of service requirement for allocation purposes D. Limiting allocations to a total of $5,000 E. Lower allocations for one or more NHCEs

answer

E. A plan that provides for a lower allocation to one or more HCEs may still rely on the IRC 401(a)(4) SHs, but not one that does the same for NHCEs.

question

6.3 All of the following statements regarding general testing are TRUE, EXCEPT: A. Rate groups that satisfy the coverage tests of IRC 410(b) are nondiscriminatory under IRC 401(a)(4). B. Rate groups can be tested by converting the ER contributions into allocation rates. C. Rate groups can be tested by converting the ER contributions into EBARs. D. Determining whether a DB plan satisfies nondiscrimination requirements on a benefits basis is a type of SH and avoids general testing. E. Elective deferrals are included when determining rate groups for the average benefits portion of the general test.

answer

D. General testing, or rate group testing, is performed when a plan cannot satisfy the nondiscrimination requirements under the SH approach. Cross-testing, which uses defined benefit principles to demonstrate nondiscrimination in a defined contribution plan (or vice versa), is a type of general testing.

question

6.4 Based on the following, determine the EBAR: - Annual Comp $160,000 - Allocation $35,000 - Actuarial Factor .006877

answer

Allocation / (Actuarial Factor * Annual Comp) C. 31.81

question

6.5 All of the following statements regarding EBARs are TRUE, EXCEPT: A. EBARs may be expressed as percentages of average annual compensation. B. The testing age used to normalize the benefits must be the Social Security retirement age. C. EBARs may be expressed as dollar amounts. D. The allocations used in the EBAR calculation may be based on the current plan year. E. The allocations used in the EBAR calculation may be based on the current plan year and all prior years.

answer

B. The testing age must be a uniform normal retirement age and is usually the normal retirement age specified in the plan.

question

6.6 All of the following statements regarding gateway requirements are TRUE, EXCEPT: A. The one-third test must be determined on the basis of IRC §415 compensation. B. The one-third test is satisfied if the lowest permissible allocation rate for any NHCE who benefits under the plan is 2%, and the highest allocation rate for any HCE who benefits under the plan is 5%. C. The 5 percent test is satisfied if each NHCE receives an allocation of 6% of IRC 415 compensation. D. The one-third test is satisfied if the lowest permissible allocation rate for any NHCE who benefits under the plan is 3%, and the highest allocation rate for any HCE who benefits under the plan is 9%. E. Compensation from date of participation may be used in the one-third test and the 5 percent test.

answer

A. The one-third test is based on allocation rates. Allocation rates are determined based on plan compensation that satisfies IRC 414(s), which may or may not satisfy IRC 415.

question

6.7 All of the following statements regarding nondiscrimination testing are TRUE, EXCEPT: A. Plans cannot be aggregated for coverage and tested separately for nondiscrimination. B. Plans cannot be permissively aggregated unless they have the same plan year. C. Elective deferrals can be general tested to satisfy nondiscrimination requirements. D. A plan may permissively disaggregate otherwise excludable employees for nondiscrimination purposes. E. Permissive disaggregation of certain portions of a plan into component parts for nondiscrimination testing is known as restructuring.

answer

C. ADP test is the only method available for elective deferrals to satisfy nondiscrimination requirements.

question

6.8 All of the following statements regarding BRFs are TRUE, EXCEPT: A. Participant loans are a right or feature subject to nondiscrimination requirements. B. Life insurance is considered an ancillary benefit. C. A lump sum distribution is an optional form of benefit. D. Participant-direction of investments is a right or feature subject to nondiscrimination requirements. E. A BRF is considered nondiscriminatory if it satisfies either the current availability test or the effective availability test.

answer

E. Both tests (current and effective availability) must be satisfied for BRFs to be considered nondiscriminatory.

question

T/F: To satisfy the diversification requirements, a plan must offer three investment alternatives other than employer stock.

answer

F. A plan need not offer other investment alternatives--it could instead offer a cash distribution and/or transfer to another qualified plan that offers such investment alternatives.

question

T/F: Leveraged ESOPs must take a loan from a commercial source.

answer

F. The loan can come from any source, as long as it is an arms-length transaction.

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T/F: ESOPs cannot be integrated using permitted disparity.

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question

T/F: For publicly traded stock, voting rights must be passed through to the participant in the ESOP.

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question

T/F: For closely held stock, voting rights must be passed through to the participant in the ESOP.

answer

F. Only certain issues must voting rights be passed through to shareholders.

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T/F: Stock bonus plans may make distributions in employer stock.

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T/F: ESOPs invest primarily in employer stock.

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question

T/F: Many employers can contribute more to an ESOP than to other defined contribution plans.

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question

T/F: A participant who is age 55 is eligible for IRC §401(a)(28) diversification.

answer

F. A participant must be age 55 with ten years of plan participation to be subject to the diversification requirements of IRC 401(a)(28)

question

T/F: Dividends paid to an ESOP may be tax deductible to the employer.

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question

T/F: If an ESOP makes a prohibited allocation or accrual, an excise tax equal to 50 percent of the accrual is imposed on the S corporation, and the disqualified person is deemed to have received a distribution in the amount of the prohibited allocation.

answer

question

T/F: The definition of family used in IRC §409(p) is much broader than other definitions of family used under other attribution rules that apply to qualified plan requirements.

answer

question

7.1 All of the following statements regarding ESOPs are TRUE, EXCEPT: A. A money purchase pension plan can include an ESOP provision. B. A 401(k) plan can include an ESOP provision. C. An ESOP can allocate contributions using permitted disparity. D. The deduction limit may exceed 25 percent of compensation in some ESOPs. E. IRC §415 limits may be higher in ESOPs than in other defined contribution plans.

answer

C. ESOPs may not use permitted disparity in their allocation formulas.

question

7.2 All of the following statements regarding ESOP diversification under IRC §401(a)(28) are TRUE, EXCEPT: A. The right to diversify must be provided annually for six years. B. Qualified participants must be able to diversify a total of 25 percent of their account balance for five years, and 50 percent in the sixth year. C. Diversification must be provided at age 55 and ten years of service. D. In the final election year, the participant must be able to diversify 50 percent of his or her account balance invested in employer stock. E. Diversification is based on the number of shares, not on the value of those shares.

answer

C. Diversification is available to participants age 55 with ten years of participation (not service).

question

7.3 Based on the following information, determine the number of shares currently available for diversification. - Participant A's account contains 20,000 shares valued at $2 per share. - Participant A is age 59 with 20 years of participation. - Two years ago, Participant A diversified 1,500 shares valued at $4 per share. A. 2,750 B. 3,500 C. 3,875 D. 5,000 E. 5,375

answer

C. (Must add back previously diversified shares to determine overall diversification availability)

question

7.4 All of the following statements regarding leveraged ESOPs are TRUE, EXCEPT: A. ESOP loans may be back-to-back loans. B. The shares purchased by the ESOP are security for the loan. C. Loan proceeds may be used to repay another exempt loan. D. Employer securities that are used as collateral are allocated to eligible participants. E. Dividends may be used to repay the loan.

answer

D. ER securities that are used as collateral must be held in a suspense account and are not allocated securities.

question

7.5 All of the following statements regarding calculating net unrealized appreciation (NUA) on a stock distribution are TRUE, EXCEPT: A. It is the difference between the value of the employer stock at the time of distribution minus the plan's cost basis in the stock. B. If the employer stock is rolled over to another qualified plan, the recipient plan's cost basis is equal to the value of the employer stock at the date of rollover. C. A participant who received a lump sum distribution that includes employer stock, may elect to exclude from gross income the entire NUA. D. A participant who receives a distribution prior to age 59½ and includes employer stock will be subject to the 10% tax on early distribution on the NUA portion that is excluded from income. E. If the value of the employer stock at the time of distributions is less than the plan's cost basis, the NUA is zero.

answer

D. The participant is not subject to the 10% excise on early distributions on the NUA that is excludable from income. The penalty only applies to the taxable portion of the distribution.

question

T/F: A person who actually exercises control of the plan's management, but is not authorized to do so, is a fiduciary.

answer

question

T/F: An employer that sponsors a qualified retirement plan is a fiduciary as a result of its role as settlor of the trust.

answer

F. An ER foes not become a fiduciary by nature of its role as settlor of the trust since settlor functions are nonfiduciary in nature. However, an ER typically becomes a fiduciary when it takes on the role of plan administrator or other roles under which it has discretion over the management of plan administration and investments.

question

T/F: When plan assets are invested in contracts issued by an insurance company, the insurance company becomes a fiduciary since it manages the assets that provide the benefits under the plan.

answer

F. Plan assets are deemed not to include the underlying assets of an insurance company with respect to a contract issued by an insurer to an employee benefit plan.

question

T/F: If a plan does not specify a named fiduciary, it must provide a procedure for identifying a named fiduciary.

answer

question

T/F: An investment manager includes any person who acts in a fiduciary capacity with respect to plan assets.

answer

F. Investment manager is an ERISA term that refers to a fiduciary who has the power to manage, acquire or dispose of any plan assets, and who has acknowledged fiduciary status in writing. ERISA permits only certain types of entities to act as investment managers, and only a named fiduciary may appoint an investment manager.

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T/F: A person may serve in more than one fiduciary capacity in a plan.

answer

question

T/F: A plan must identify the persons with authority to amend the plan.

answer

F. The plan must provide a procedure for identifying the persons with authority to amend the plan. A reference to "the Company" satisfies the request to identify the persons with authority to amend the plan.

question

T/F: An investment policy statement must be adopted to provide instructions to the fiduciaries regarding the investment of plan assets.

answer

F. A plan must provide a procedure for establishing and implementing a funding policy. However, it need not adopt an investment policy statement, although it may be advisable to do so. An investment policy statement provides general instructions or guidelines applicable to investment situations.

question

T/F: If a trustee discovers a breach of fiduciary liability by a co-fiduciary, the best course of action is to resign as trustee.

answer

F. Resignation of a trustee may not be sufficient to avoid liability when the trustee has knowledge of a breach. The trustee must take steps to remedy the breach.

question

T/F: A plan, a fiduciary or an employer may purchase insurance to cover liability or losses by reason of a fiduciary breach.

answer

question

8.1 All of the following individuals are fiduciaries with respect to a plan, EXCEPT: A. An individual who exercises discretionary authority over the plan's participant loan program. B. An individual who exercises control over the purchase and sale of plan assets. C. An individual who provides investment advice for a fee with respect to plan funds. D. An individual who prepares audited financial statements of the plan assets. E. An individual who determines which participants are eligible to receive benefits and authorizes the payment of such benefits.

answer

D. The preparation of financial statements by the plan's auditor is not a fiduciary function.

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8.2 All of the following statements regarding fiduciary liability are TRUE, EXCEPT: A. Any agreement containing exculpatory provisions that attempt to relieve a fiduciary from liability is void under ERISA. B. A fiduciary that approves a limitation of liability clause in a service provider contract is personally liable for any losses that exceed the liability limitations. C. A plan may purchase insurance that will reimburse the plan for any losses suffered as a result of a fiduciary breach. D. An employer or other party may indemnify a fiduciary, provided the fiduciary remains responsible for any breaches committed as a fiduciary. E. A fiduciary may purchase liability insurance with his or her own funds.

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B. A fiduciary must consider the liability limitation in a service provider contract in the context of all other factors in determining the reasonableness of the agreement and the potential risks to participants. If the liability limitation is reasonable, then the fiduciary is not necessarily liable for losses in excess of the liability limitation.

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8.3 All of the following are fiduciary functions, EXCEPT: A. Determining eligibility for the plan B. Reviewing claims for plan benefits C. Paying PBGC premiums D. Maintaining plan records according to ERISA requirements E. Hiring an investment manager

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C. Paying PBGC premiums is a settlor function, not a fiduciary function.

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8.4 All of the following statements regarding consequences of fiduciary breaches are TRUE, EXCEPT: A. Fiduciaries must restore losses incurred by the plan due to a failure to diversify investments. B. A fiduciary will not be held liable for a breach made by the investment manager. C. A fiduciary's account balance in the plan may be used to offset damages to the plan if necessary. D. A fiduciary may be required to pay any profits earned in a breach to the plan. E. Fiduciaries must restore losses incurred by the plan due to mismanagement of the plan.

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B. A fiduciary may be subject to co-fiduciary liability with respect to an investment manager's breach of fiduciary duties if the fiduciary hired said investment manager and did not monitor the investment manager's activities.

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8.5 All of the following factors should be considered when choosing a service provider, EXCEPT: A. Fees charged for services to be performed B. Qualifications of the service provider C. Quality of the services to be performed D. Litigation or enforcement action taken against the service provider E. Design of the service provider's office

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T/F: A disqualified person is always a party-in-interest.

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T/F: A party-in-interest is always a disqualified person.

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F. A party-in-interest is not always a disqualified person.

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T/F: A PT does not necessarily mean plan disqualification.

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T/F: The PT rules do not apply to plans whose assets are participant-directed.

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F. Plans that are participant-directed are not exempt from the PT rules.

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T/F: A plan may not sell or lease property to a disqualified person.

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T/F: Loans to plan participants are exempt from the PT rules as long as certain conditions are met.

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T/F: A class exemption provides relief from the excise tax under the IRC and the fiduciary liability consequences under ERISA.

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T/F: An excise tax of 100 percent of the amount of the PT may be imposed if the transaction is not corrected in a timely manner.

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T/F: The plan is liable for payment of the PT excise tax.

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F. The disqualified person is liable for payment of the excise tax on the PT..

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T/F: The DOL may assess civil penalties on a party-in-interest involved in a PT.

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9.1 All of the following are disqualified persons under IRC §4975, EXCEPT: A. An accountant who prepares Form 5500 for a plan B. A brother of a 45 percent owner of the plan sponsor C. A plan trustee's father D. A member of the board of directors of the plan sponsor E. A union whose members are covered by the plan

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B. A brother is not considered a family member under the attribution rules applicable to PTs. A family member would be included as a disqualified person under IRC 4975 only if the relative's ownership is at least 50%.

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9.2 All of the following transactions are exemptions from the PT rules, EXCEPT: A. The purchase by the plan of the building in which the sponsor conducts his or her business B. Reasonable compensation paid for necessary accounting services for the plan C. The sale of life insurance to a participant from the plan D. The investment of assets of the plan in a bank that is also the plan's trustee E. A loan to a leveraged ESOP from the plan sponsor to purchase employer stock

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A. If the sponsor owns the building, this would be a sale of property between the sponsor and the plan. If a third party owns the building, the sale to the plan would then violate the use of plan assets for the sponsor's benefit. Both are PTs.

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9.3 Which of the following statements regarding consequences of PTs is/are TRUE? I. Form 5330 is used to transmit the applicable excise tax to the IRS. II. EPCRS is available to correct PTs. III. The initial excise tax is 15 percent of the amount involved. A. I only B. II only C. I and II only D. I and III only E. I, II and III

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D. EPCRS is not currently available to correct PTs.

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9.4 All of the following are covered service providers under the fiduciary fee disclosure regulations, EXCEPT: A. Registered investment advisor compensated by plan assets B. Investment platform provider whose fee is paid by the plan C. Trustee who is paid a percentage of the plan assets from the plan D. Third-party administrator paid partly through 12b-1 fees generated by plan investments E. Plan auditor paid by the plan sponsor

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E. If the service provider's fees are paid by the plan sponsor rather than the plan, the disclosure fee disclosure rules do not apply to the service provider.

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9.5 Which of the following statements regarding consequences of failing to comply with the required fiduciary fee disclosures is/are TRUE? I. The PT exemption will not apply to the covered service provider. II. The covered service provider will be liable for a 15% excise tax on the amount of fees charged. III. The IRS may require the service provider to return to the plan any fees that have been paid. A. I only B. II only C. I and III only D. II and III only E. I, II and III

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T/F: The distribution notice describes the benefit payment options, right to delay distribution until at least normal retirement age, and direct rollover feature.

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T/F: Certain distribution notice requirements depend on whether the QJSA rule applies to the participant.

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T/F: The Supreme Court's invalidation of DOMA §3 (in Windsor) allows same-sex couples who are legally married to have many of the rights as opposite-sex couples, such as allowing for hardship distributions for spousal medical expenses.

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T/F: A plan that requires spousal consent for a loan will need to obtain spousal consent from same-sex spouses as well as opposite-sex spouses.

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T/F: Distribution notice requirements refer to information that must be provided to the participant before distributions may be made.

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T/F: The $5,000 threshold for the notice and consent requirements is based on the participant's vested account balance as of the date of distribution.

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T/F: When a participant takes a partial distribution, the consent given applies to the full account balance.

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F. The consent given for a partial distribution only applies to the partial distribution, not the full account balance.

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What will the beneficiary of a life insurance policy will be taxed on for the total distribution from the policy?

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On the net insurance proceeds, which is the face amount of the policy less the reserve accumulation.

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T/F: A self-employed individual's contributions for the purchase of life insurance are not deductible by the self-employed individual.

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T/F: Nonpension plans may use the 100-times rule for determining incidental benefit limits regarding life insurance.

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F. The 100-times rule is only applicable to pension plans.

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10.1 All of the following information must be provided to a participant prior to receiving a distribution due to termination of employment, EXCEPT: A. Loan procedures B. Taxation issues C. Information about how a distribution will be taxed D. The optional forms of payment available E. The right to delay payment until normal retirement age

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10.2 Which notice must be provided to the participant? - The plan is a target benefit plan - The participant is age 35 and terminates employment. - The participant has a vested account balance of $750. - The plan will make involuntary cash out of benefits. A. Waiver of the QJSA notice B. Optional forms of benefit notice C. Right to delay distribution to NRA notice D. Rollover notice E. Spouse's consent rights regarding a waiver of the QJSA

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D. A participant with an account balance of less than $5,000 is only required to receive the rollover notice when an involuntary distribution is made.

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10.3 All of the following are affected by the Court's invalidation of DOMA §3, EXCEPT: A. Definition of spouse B. Rules for family attribution C. Application of QPSA and QJSA D. Rollover to spousal IRA E. Allocation of participant's contribution

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10.4 Which of the following statements regarding life insurance in defined contribution plans is/are TRUE? I. The participant is required to pay taxes on the term cost of the insurance each year. II. Net insurance proceeds paid to the beneficiary are not taxable. III. Incidental life insurance can remain in the plan post-retirement until the participant elects a distribution. A. I only B. III only C. I and II only D. II and III only E. I, II and III

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C. A life insurance policy must be converted to retirement income or distributed to the participant no later than the NRA under the plan in order to satisfy the incidental life insurance requirements.

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10.5 Which of the following statements regarding the incidental life insurance benefit limit is/are TRUE? I. The limit for a term life insurance policy is 25% of the aggregate contributions. II. The limit for a whole life insurance policy is less than 50% of the aggregate contributions. III. The limit for a universal life insurance policy is less than 50% of the aggregate contributions. A. I only B. III only C. I and II only D. II and III only E. I, II and III

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C. A universal life insurance policy is treated as if it is a term insurance policy for purposes of the incidental benefit limit.

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T/F: Advertising includes all forms of communication whether oral, written or electronic.

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T/F: Professional services include providing advice, recommendations, or opinions related to a retirement plan.

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T/F: An ASPPA Member may disclose to another ASPPA Member confidential information learned about a client whenever asked by another ASPPA Member.

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F. An ASPPA Member may only disclose confidential information about a client if the client has authorized the Member to do so.

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T/F: The ASPPA Code of Professional Conduct shall override IRS Circular 230.

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F. The ASPPA Code of Professional Conduct is not intended to supplant, contradict or supersede Law. Where the requirements of Law or such governmentally-sanctioned Codes conflict with this Code, the requirements of Law or such governmentally-sanctioned Codes take precedence.

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T/F: An ASPPA Member who has the education, training and experience to advise a client regarding the benefits of a cash balance plan versus a target benefit plan may do so.

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T/F: An ASPPA Member who is found guilty of a felony shall be subject to ASPPA's disciplinary procedures.

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T/F: An ASPPA Member may provide professional services to a client who requests it even though the client is being served by another professional in the same manner.

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T/F: If a request for information is received by an ASPPA Member from a person authorized by ASPPA to obtain information regarding a possible violation of the ASPPA Code of Professional Conduct, the Member shall respond promptly in writing.

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T/F: A credential is a membership designation conferred by ASPPA.

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T/F: Confidential information may include information which the ASPPA Member has reason to believe that the client would not wish to be divulged.

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11.1 All of the following statements are violations of ASPPA's Code of Professional Conduct, EXCEPT: A. Advertising that the Member is a CPC when the member has not received the designation from ASPPA. B. Advertising that the Member's firm employs only QKAs to do administration on 401(k) plans when the firm has other individuals administering the plans without the designation. C. Orally informing a potential client that the Member's firm administers 1,500 401(k) plans when in reality it administers only 300. D. On the Member firm's website advertising that the firm is qualified to administer ESOP plans when the firm has never administered one. E. Providing a potential client written material that indicates any potential income it may receive from investment products that are purchased by the plan.

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11.2 All of the following statements are violations of ASPPA's Code of Professional Conduct, EXCEPT: A. After attending a client's confidential board meeting, you inform a friend that the client will merge with another firm so the friend can sell the company stock. B. Your client requests that you provide another service provider participant account balance details and you do so electronically based on the new service provider's specifications. C. You discuss your client's salary information with a friend interested in working for the client. D. The President of the company you administer a profit sharing plan for, notified you that the he would be informing the board next week that he is retiring and you repeat the information today to a shareholder. E. The client has not paid your invoices so you tell the new administration firm that the client has a poor credit rating.

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11.3 Which of the following statements regarding conflict of interest requirements under ASPPA's Code of Professional Conduct is/are TRUE? I. The Member shall fully disclose any actual conflict of interest to a client. II. The Member's ability to act fairly must be unimpaired. III. The Client must expressly agree to the services that are provided by the Member. A. I only B. II only C. I and III only D. II and III only E. I, II and III

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11.4 All of the following statements regarding ASPPA's Code of Professional Conduct are TRUE, EXCEPT: A. An ASPPA Member shall render opinions or advice only when qualified to do so based on education, training and experience. B. An ASPPA Member must adhere to the high standards of conduct, practice and qualification. C. An ASPPA Member must abide by the ASPPA Code of Professional Conduct regardless of other laws. D. An ASPPA Member shall take reasonable steps to ensure that services rendered under the Member's supervision are performed with honesty, integrity, skill and care. E. An ASPPA Member shall perform services with courtesy and shall cooperate with others in the client's interest.

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11.5 Which of the following statements is/are violations of ASPPA's Code of Professional Conduct? - Your client has informed you that they are having cash flow issues and are not going to deposit employee 401(k) contributions into their 401(k) plan for six months so that they can use the funds to help meet their payroll obligations. - There are 50 participants in their 401(k) plan. I. I. You advise the client that this will result in a loan from the plan to the plan sponsor and is a prohibited transaction. II. You advise the client that the employee contributions must be deposited to the plan within seven business days from when they would have been paid to the participants. III. You listen to the client's concern with empathy, discuss how difficult it is for a small business to comply with the additional expenses generated by the new health care laws and concur with their course of action to solve their cash flow issues. A. I only B. III only C. I and II only D. II and III only E. I, II and III

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Bed And Breakfast Business Business Management Computer Aided Manufacturing Defined Benefit Plan Long Term Financing Short Term Financing Small Business Administration Small Business Owner

Boone ; Kurtz Contemporary Business 15th Edition Chap 5-6 – Flashcards 44 terms

Shelby Arnold

44 terms

Preview

Boone ; Kurtz Contemporary Business 15th Edition Chap 5-6 – Flashcards

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Small Business

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independent business with fewer than 500 employees, not domain in it is market.

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Home-based Business

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firms operated from the residence of the business owner

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Business Plan

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written document that provides an orderly statement of a company's goals, methods, and standards.

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Small Business Administration (SBA)

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principal government agency concerned with helping small U.S. firms.

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Microloan

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small-business loans often used to buy equipment or operate a business

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Business Incubator

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local programs designed to provide low-cost shared business facilities to small start-up ventures.

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Venture Capital

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money invested in a business by another business firm or group of individuals in exchange for an ownership share.

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Franchising

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contractual business agreement between a manufacturer or other supplier, and a dealer such as a restaurant operator or retailer.

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Franchisee

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individual or business firm purchasing a franchise.

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Franchisor

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Firm whose products are sold to customers by the franchisee.

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Sole Proprietorship

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business ownership in which there is no legal distinction between the sole proprietor's status as an individual and his or her status as a business owner.

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Partnership

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association of two or more persons who operate a business as co-owners by voluntary legal agreement.

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Corporation

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legal organization of two or more persons as co-owners by voluntary legal agreement.

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S Corporation

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corporations that do not pay corporate taxes on profits; instead, profits are distributed to shareholders, who pay individual income taxes.

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Limited-liability Corporation (LCC)

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corporation that secures the corporate advantage of limited liability while avoiding the double taxation characteristic of a traditional corporation.

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Employee ownership

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business ownership in which workers buy shares of stock in the company that employs them.

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Not-for-profit Corporations

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organization whose goals do not include pursuing a profit.

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Public Ownership

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a unit or agency of government owns and operates and organization.

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Cooperative Ownership

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collective ownership whose owners join forces to operate all or part of the activities in their firm or industry.

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Domestic Corporation

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A firm is considered domestic in the state where it is incorporated.

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Foreign Corporation

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A firm is considered foreign in the states other than the one it has filed incorporation papers.

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Alien Corporation

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A firm operating in one nation other than the one it is incorporated in.

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Stockholders

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owners of a corporation due to their purchase of stock in the corporation.

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Preferred Stock

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shares that give owners limited voting rights, and the right to receive dividends or assets before owners of common stock.

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Common stock

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shares that give owners voting rights but only residual claims to the firm's assets and income distributors.

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Board of Directors

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governing body of a corporation.

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Merger

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agreement in which two or more firms combine to form one industry.

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Aquisition

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agreement in which one firm purchases another.

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Vertical Merger

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merger that combines firms operating at different levels in the production and marketing process.

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Horizontal Merger

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merger that joins firms in the same industry for the purpose of diversification, increasing customer bases, cutting costs, or expanding product lines.

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Conglomerate Merger

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merger that combines unrelated firms, usually with the goal of diversification, spurring sales growth, or spending a cash surplus in order to avoid a takeover attempt.

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Joint Venture

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partnership between companies formed for a specific undertaking.

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Entrepeneur

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a risk taker in the private enterprise system, a person who seeks a profitable opportunity an takes the necessary risks to set up and operate a business.

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Classic Entrepeneur

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a person who identifies a business opportunity and allocates available resources to tap that market.

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Serial Entrepeneur

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a person who starts one business, runs it, and then starts and runs additional businesses in succession.

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Social Entrepeneur

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a person who recognizes societal problems and uses business principles to develop innovative solutions.

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Lifestyle Entrepeneur

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a person who starts a business to gain flexibility in work hours and control over his or her life.

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Seed Captial

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initial funding used to launch a company

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Debt Financing

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borrowed funds that entrepreneurs must repay.

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Equity Financing

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funds invested in new ventures in exchange for part ownership.

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Venture capitalists

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business organizations or groups of individuals that invest in early-stage, high-potential growth companies.

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Angel Investors

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wealthy individuals who invest money directly in new ventures in exchange for equity.

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Intrapeneurship

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process of promoting innovations within the structure of an existing organization.

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Skunkworks

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project initiated by an employee who conceives an idea, convinces top management of its potential, and then recruits hum and other resources from within the company to turn the idea into a commercial project.

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