E1: Pensions & Retirement

Which of the following is incorrect regarding Roth Accounts?

after-tax contributions

tax-deferred growth on earnings

no required minimum distributions

taxable withdrawals in retirement

taxable withdrawals in retirement

Which of the following retirement plans is specifically used for a a 501(3)(c) corporation (not-for-profit)

ESOP

profit-sharing plans

401k

403b

403b

Which of the following is true for a non-qualified retirement plan but false for a qualified retirement plan?

the employer receives a tax deduction at the time employees have taxable income

the earnings on the assets are taxed to the employer

there are large administrative costs

the plans must cover a portion of the rank-and-file employees

the employer receives a tax deduction at the time employees have taxable income

what is the overall goal of retirement planning?

to retire as early as possible

to travel

to plan for retirement according to client goals

ti have millionss for retirement

to plan for retirement according to client goals

which of the following is not a benefit of a non-qualified retirement plan?

they can be limited to owners & execs

there is limited benefit security for participants

there are a few design restrictions

the employee does not have to claim income until they receive a benefit

there is limited benefit security for participants

which of the following is not a reason an employer would use a qualified retirement plan

to attract & retain employees

to avoid unions

to increase owner's retirement amounts to the detriment of employees

to increase profits through employee motivation

to increase owner's retirement amounts to the detriment of employees

which is not a part of financial coaching for clients?

calculate retirement savings

budget day-to day finances

purchase life insurance

plan for health care in retirement

purchase life insurance

which of the following would not be done by the retirement plan specialist when appraising investments in the retirement plan?

engage in prohibitied transactions

write up IPS

replace underperforming funds

set investment goals

engage in prohibited transactions

which of the following is not an advantage of retirement plans

encourages savings for retirement

employer tax deductions

ability to defer taxes until retirement

increases overall cost of retirement

increases overall cost of retirement

which of the following is not a requirement for a qualified retirement plan?

the plan must have broad employee participation

the plan does not have to be prefunded

there must be a plan document explaining the options

there can be a vesting schedule in place

there can be a vesting schedule in place

Roth IRA

contributions are made after-tax

Qualified Retirement Plans

plan must follow ERISA rules in order to receive for both employer & employee tax benefits

Nonqualified Retirement plans

plan can be skewed to benefit owners & executives rather than rank & file employees

Traditional IRA

contributions are made before tax

Required Minimum Distributions

amount is calculated based on age & the life expectancy table provided by IRS

Which of the following is not a defined-benefit plan?

target benefit

multi-employer

cash-balance

unit benefit defined benefit plan

target benefit

Which of the following is not a profit-sharing plan?

age weighted profit sharing plan

SIMPLE IRA

Money purchase plan

Solo-k

Money purchase plan

Which of the following is a pension plan?

SEP

New comparability profit sharing plan

ESOP

money purchase plans

money purchase plans

Which of the following is not a defined-contribution plan?

403b

cash balance plan

stock bonus plan

401k

cash balance plan

Which of the following is true for a pension system and false for a profit sharing system?

the employee funds the plan

there is not an annual funding requirement

there are no in-service withdrawals allowed

there are no limits on the investment of company stock

there are no in-service withdrawals allowed

Which of the following pieces if information would be least important to ask the client for factfinder?

business structure

date business was established

company's vision statement

financial statements

company's vision statement

Which of the following is false regarding a keogh plan?

are for self-employed people

net earnings are = to salary

based on the net earnings

deductions allowed is 25% of compensation

net earnings are = to salary

ur client wants to set up replacement salary plan for retirement

profit sharing plan

defined contribution plan

non-qualified plan

defined benefit plan

defined benefit plan

which of the following is incorrect regarding best practices

confirm the clients agreement in writing

give client 1 option of retirement plans

develop implementation schedule

discuss the prospectives clients issues for retirement plans

give client 1 option of retirement plans

which of the following is not a plan sponsor's goal?

tax evasion

tax needs of owner

tax deferral through salary deductions

tax shelter

tax evasion

SEP

small business employer pays a percentage of a salary

Age weighted profit sharing plan

benefits favor the owners when they are older than the other employees

Cash Balance plan

a hybrid formula of a defined benefit plan

New comparability profit sharing plan

there are higher contributions of this profit sharing plan for the owners by grouping people

Discretionary profit sharing plan

when there is a to be announced percentage of salary that is determined at year end

Split-Dollar Arrangement

A discriminatory employee benefit plan using life insurance. The employer and employee share the cost of a life insurance policy on the employee (usually permanent insurance such as whole life insurance or variable universal life insurance). Typically used by businesses to provide low cost insurance to key employees.

Which statement about defined benefit plans is false?

the benefit in retirement is based on formula

they are designed to give employees highest lump sum payout possible

they have a maximum benefit of $275,00 (2025) in retirement benefits

they can deduct whatever the actuary tells them to contribute to the plan

they are designed to give employees highest lump sum payout possible

which of the following is not an advantage of a defined-benefit plan?

they allow for employees to contribute the maximum amount of their salary

the plans accumulate a larger benefit at retirement

the plans allow for large benefits to be accrued in a short period of time

businesses can contribute more each year than other types of plans

they allow for employees to contribute the maximum amount of their salary

which of the following is not a reason to adopt a defined benefit plan for a client?

client wants to provide:

the highest tact shelter of funds

an incentive for staying with the company

a replacement of salary in retirement

the highest elective deferrals

the highest elective deferrals

which of the following is true for a unit benefit and false for a cash balance formula?

there is unallocated funding by the employer contributions

involves no individual accounts

can provide for past service

deduct whatever the actuary says to contribute to achieve the full benefits

can provide for past service

which of the following is a reason that a client would want to use a cash balance plan instead of a unit-benefit plan?

they want plan to be portable

they want employee to feel like they have their own account

neither

both

both

which of the following is true for a unit benefit formula?

the employee has an account that gives them a total amount in retirement

the preretirement investment risk falls on the employee

they cannot get insurance protection from the PBGC

the employee knows the yearly benefit they will receive in retirement

the employee knows the yearly benefit they will receive in retirement

which is not a business characteristic that fits with a cash-balance plan?

the owners should be the same age as rank & file employees

the plan sponsor can provide 8-10% of their pay for employees

business owners want to reduce their tax burden

steady cash flow

the owners should be the same age as rank & file employees

which of the following is an advantage of a defined benefit plan?

employer shoulders the investment risk

plan sponsors must pay the PBGC premiums

there is an annual funding requirement

if an employee passes away their unallocated funding goes towards other employees

if an employee passes away their unallocated funding goes towards other employees

which of the following is not a strategy when retiring from a unit-benefit plan?

choosing a date to retire

delaying retirement strategy

choosing a year to retire

the double dipping strategy

delaying retirement strategy

your client is a smaller biz but has steady cash flow, looking to implement retirement pension plan . which of the formula options should they have given that they want to provide the same monthly benefit for every participant no matter how much they have worked or made?

flat percentage of earnings

final average earnings formula

flat amount formula

flat amount per year of service formula

flat amount formula

Unit-Benefit Formula

accrual rate x years of service x final average salary

Cash-Balance Formula

Pay Credit + Interest Rate

Portability

plan can be rolled into another employer's plan or into an IRA

Unallocated funding

employer contributions can go into single account that makes payments to retirees

Double-Dipping

having multiple jobs through the years and each job has a pension plan that can be accessed in retirement