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									                                             Eastern Illinois University
                                                     FIN 4300
                                                 Final Exam Topics


                                  Calculations will be required for items in bold.



                                        Introduction to Retirement Funding
                                                     Chapter 2

1)   Factors Affecting Retirement Planning
     a) Remaining Work Life Expectancy (RWLE)
     b) Retirement Life Expectancy (RLE)
     c) Savings
     d) Annual Income Needs
     e) Wage Replacement Ratio (WRR)
     f) Inflation
     g) Retirement Income Sources
     h) Investment Returns
2)   Retirement Needs Analysis
     a) Methods of Calculating
          i) Top-Down Approach
3)   Sources of Retirement Income
4)   Capital Needs Analysis
     a) Calculation methods
          i) Annuity Method
5)   Sensitivity Analy sis
     a) Monte Carlo Analysis
6)   Sustainable withdrawal rate


                                              Qualified Plan Overview
                                                      Chapter 3
1)   Qualified Plans
     a) Advantages of Qualified Plans
     b) Qualification Requirements
          i)    Coverage
          ii) Vesting
          iii) Covered Compensation
          iv) Plan Limitations on Benefits and Contributions
                (1) Defined Benefit Plan Annual Benefits
                (2) Defined Contribution Plans Contributions


                                              Qualified Pension Plans
                                                     Chapter 4

1)   Pension Plan Requirements
     a) Mandatory Funding
     b) Disallowance of Most In-Service Withdrawals
     c) Limited Investment in Employer Securities
     d) Limited Investment in Life Insurance
2)   Defined Benefit vs. Defined Contribution Pension Plans
     a) Primary differences
          i)   Investment risk
          ii) Forfeitures
          iii) PBGC
          iv) Accrued Benefit vs. Account Balance
3)   Actuary
     a) Assumptions in determining plan contributions
4)   Target Benefit Pension Plan
5)   Social Security Integration
     a) Excess Method
6)   Defined Benefit Plans
     a)   Defined Benefit Pension Plans
          i) Pension formula
     b)   Cash Balance Pension Plans
     c)   Money Purchase Pension Plans
     d)   Target Benefit Pension Plans


                                                Profit Sharing Plans
                                                     Chapter 5

1)   Profit Sharing Plans
     a) Stock Bonus Plans
     b) Employee Stock Ownership Plans
     c) 401(k) Plans
     d) Thrift Plans
     e) Age Based Profit Sharing Plans
     f) New Comparability Plans
2)   Characteristics
3)   Contributions and Deductions
     a) Allocation of Contributions
           i) Standard Allocation
           ii) Age-Based Profit Sharing Plans
4)   Cash or Deferred Arrangements (CODA) – 401(k)
     a) Establishing a 401(k)
     b) Eligibility
     c) Vesting
     d) Contributions
           i) ADP/ACP
     e) Nondiscrimination Testing
     f) Investment
5)   Distributions
     a) Hardship Distributions


                                            Stock Bonus Plans and ESOPs
                                                     Chapter 6

1)   Stock Bonus Plans
     a) Special Requirements
     b) Advantages and Disadvantages of Stock Bonus Plans
     c) Contributions:
     d) Eligibility:
     e) Allocation:
     f) Vesting:
     g) Investment:
     h) Distributions:
          i)  Net Unrealized Appreciation Then taxed as long-term capital gain (lower tax rates)
2)   Employee Stock Ownership Plans (ESOPs)
     a) Advantages of ESOPs
     b) Disadvantages of ESOPs
     c) Distributions from ESOPs (1 of 2)

                                          Distributions from Qualified Plans
                                                      Chapter 7

1)   Distributions:
     a) Pension Plan
           i)   Normal Retirement Age
           ii) Termination of Service Before Normal Retirement Age
           iii) At participant’s death before retirement:
           iv) At participant’s disability before retirement:
     b) Profit Sharing Plan
           i)   Qualified Domestic Relations Orders (QDRO).
           ii) Rollovers to IRAs
           iii) Adjusted Basis in Plan
2)   Plan Loans
     a) Amount
     b) Repayment
3)   Distributions Prior to 59½
     a) Early withdrawal penalty
           i)   Exceptions
4)   RMD
     a) Amount
     b) When distributions begin
           i)   Roth
           ii) Beneficiary
                (1) Spouse
                (2) Trophy spouse
                (3) Non spouse
           iii) Before death
           iv) After death


                         Installation, Administration and Termination of Qualified Plans
                                                    Chapter8

1)  Establishment
    a) Requirements
         i)    Master/prototype
         ii) Custom
               (1) Determination letter
    b) Filings
         i)    Initial Notification of Eligible Employees
         ii) Summary Plan Description
         iii) Summary of Material Modifications
2) Qualified Trust
3) Fiduciary
4) Installments
5) Keogh Plans: self-employed individuals
6) Prohibited Transactions
7) Employee Retirement Income Security Act (ERISA)
    a) Anti-alienation:
8) Department of Labor
9) Pension Benefit Guaranty Corporation (PBGC)
    a) Premiums
10) Amending or Terminating a Qualified Plan
    a) Amending
    b) Terminating
11) Qualified Plan Selection
12) Administration Costs

                                                     IRAs and SEPs
                                                       Chapter 9
1)   Traditional IRAs
     a) Amount deductible
     b) Nondeductible contributions
2)   Roth IRAs
     a) Qualified distributions
     b) Nonqualified distributions: penalties
     c) Conversions
3)   Contribution Limits
     a) Deductible: Traditional
4)   Required Minimum Distributions
5)   Exceptions to 10% Early Withdrawal Penalty
6)   IRA Investment Options
7)   Rollovers from Qualified Plans to IRAs
8)   Simplified Employee Pensions (SEPs)
9)   Small Business Retirement Plan
     a) Coverage Requirements
     b) Establishment of a SEP
     c) Contributions to SEPs
                                       SIMPLES, 403(b) Plans, and 457 Plans
                                                      Chapter 10
1)    Savings Incentive Match Plans for Employees (SIMPLEs).
      a) Establishing a SIMPLE
      b) Eligibility
      c) Vesting
      d) Employee Elective Deferrals
      e) Employer Contributions
      f) Withdrawals and Distributions
2)    403(b) Plans – Tax Sheltered Annuities
      a) Eligible institutions
      b) Distribution options
      c) Eligibility
3)    457 Plans
      a) Eligible Entities
      b) Eligibility
      c) Employee elective deferrals
      d) Distributions from 457 Plans

                                                Social Security
                                                 Chapter 11
     1)    Benefits Available
     2)    Inadequate funding of Social Security, Medicare
     3)    Social Security Taxes and Contributions
     4)    Qualifying for Social Security Benefits
     5)    Social Security Beneficiaries
     6)    Retirement benefits payable at retirement
      a)    Calculating the Retirement Benefit (AIME percentages provided)
      b)    Early Retirement
      c)    Delayed Retirement
     7)    Early-retirees who have earnings from continued employment
     8)    Taxation of Social Security Benefits
     9)    Disability Benefits
     10)   Benefits payable to family members of deceased individuals
     11)   Maximum Family Benefit
     12)   Medicare Benefits
      a)    Hospital Insurance - Medicare Part A
      b)    Medical Insurance - Medicare Part B
      c)    Prescription Drug – Medicare Part D
     13)   Effect of Marriage or Divorce on Benefits
1)   Mildred and Milford Markus would like to retire in 28 years. They would like to have income equivalent to 80% of
     their current income of $65,000 in today’s dollars and they anticipate $14,000 per year in Social Security benefits in
     today’s dollars. If the Markus’s anticipate inflation will average three percent, what is the first year retirement
     income they will require?
     a) 52,000
     b) 86,941
     c) 116,684
     d) 118,972

2)   Mildred and Milford Markus would like to retire in 28 years. They would like to have income equivalent to 80% of
     their current income of $65,000 in today’s dollars and they anticipate $14,000 per year in Social Security benefits in
     today’s dollars. If the Markus’s anticipate inflation will average three percent, their retirement assets will average a
     seven percent rate of return and their retirement life expectancy will be 32 years, approximately how much does
     they need at retirement to fulfill their retirement goals?
     a) 1,176,473
     b) 1,553,944
     c) 1,825,804
     d) 2,242,179

3)    Mildred and Milford Markus would like to have accumulated $2,242,179 when they retire in 28 years. They
     currently have $90,000 in retirement funds. If they can average a nine percent return on investment and inflation
     averages three percent, what is the amount they need to save each year to achieve their objective?
     a) 10,951
     b) 19,848
     c) 27,062
     d) 28,745

4)   The earliest age an individual can begin to receive Social Security benefits is age __?
     a) 59 ½
     b) 62
     c) 65
     d) 67
     e) 70

5)   Which of the following would not impact the amount of Social Security benefits an individual would receive?
     a) age that individual began to receive benefits
     b) lifetime earnings of the worker
     c) whether the individual is married
     d) the amount of assets the individual has accumulated in retirement accounts at his date of retirement

6)   Which of the following will be added to AGI and increase the amount of taxable Social Security benefits?
     a) municipal bond interest
     b) self-employed health insurance
     c) Federal income tax refund receiv ed in the current year
     d) group-term life insurance of $40,000

7)   The maximum annual additions per participant to a defined contribution account in 2010 is:
     a) 5,000
     b) 15,500
     c) 20,500
     d) 49,000
     e) 195,000

8)   Which of the following will impact a participant’s monthly retirement benefit in a defined benefit plan?
     a) the amount of forfeitures allocated to an employee’s account
     b) the rate of return earned on investments in the retirement account
     c) the employee’s length of service
     d) the amount of employer contributions

9)   Which of the following is not a qualified retirement plan?
     a) ESOP.
     b) 401(k) plan.
     c) Roth IRA
     d) Cash balance pension plan.
10) Each of the following is a characteristic of a defined benefit retirement plan EXCEPT:
    a) The plan specifies the benefit an employee receives at retirement.
    b) The law specifies the maximum allowable benefit payable from the plan is equal to the lesser of 100% of salary
        or $195,000 per year currently.
    c) The plan has less predictable costs as compared to defined contribution plans.
    d) The plan assigns the risk of pre-retirement inflation, investment performance, and adequacy of retirement
        income to the employee.

11) Which of the following factors may affect a person’s individual retirement planning?
    a) Work life expectancy.
    b) Retirement life expectancy.
    c) Inflation.
    d) Savings rate.
        i)    1 and 2.
        ii) 2 and 3.
        iii) 1, 3, and 4.
        iv) All of the above.

12) Which of the following is not a defined benefit plan formula(s)?
    a) Unit benefit (a.k.a. percentage-of-earnings-per-year-of-service) formula.
    b) Percentage of age formula
    c) Flat-percentage formula.
    d) Flat-amount formula.

13) What is the minimum number of years an individual must work to be eligible for Social Security benefits?
    a) 4
    b) 10
    c) 29 ½
    d) 30
    e) 40

14) Which of the following individuals would be eligible to receive Social Security benefits?
    a) B. Late Brooks, age 69, who worked for two years as a pizza chef and is single. She was married to Porkchop
        Plummer for eight years.
    b) Claudia Cline, age 67, who worked one year as a dog washer. She is currently unemployed and married to
        Seroy Shields, age 68, who worked as a radio analy st for seven years. They have a three-year old son.
    c) both a) and b)
    d) neither a) or b)

15) All of the following statements concerning cash balance pension plans are correct EXCEPT:
    a) The cash balance plan is generally established as a cost saving measure.
    b) The cash balance plan is a defined benefit plan.
    c) The cash balance plan has no guaranteed annual investment return to participants.
    d) The cash balance plan is subject to minimum funding requirements.

16) In 2010, Mabel Meredith, age 49, is a participant in the 401(k) plan at her employer. Her husband Marvin, age 51,
    is a stay at home soccer dad. Mabel’s salary is $96,000 and the couple’s AGI is $99,000. What is the maximum
    deduction the Merediths can take for contributions to Traditional IRAs?
    a) 0
    b) 2,500
    c) 5,500
    d) 8,500
    e) 11,000
17) What is the maximum percentage of Social Security benefits subject to Federal income tax?
    a) 15%
    b) 25%
    c) 75%
    d) 85%
    e) 100%

18) Kapper Kins sponsors a 401(k) profit sharing plan. In the current year, the company contributed 25% of each
    employees’ compensation to the profit sharing plan. The ADP of the 401(k) plan for the NHC (peons) was 3.5%. If
    Kabby Kapper, age 57, earns $100,000 and is a 6% owner, what is the maximum amount that he may defer into the
    401(k) plan for this year?
    a) $3,500.
    b) $5,500.
    c) $16,500.
    d) $22,000.

19) Which of the following is one of the tests a plan can meet to satisfy qualified plan discrimination testing?
    a) The plan must benefit at least 70% of non-highly compensated employees
    b) If 80% of the highly compensated employees are covered by the plan, only 56% of the non-highly
        compensated employees must be covered by the plan
    c) both a) and b)
    d) neither a) or b)

20) If an employer elects to use cliff vesting, when are employee and employer contributions fully vested in a qualified
    plan?
    a) immediately, 3 years
    b) 3 years, 6 years
    c) immediately, 6 years
    d) both vest in 3 years

21) Which of the following are subject to FICA (payroll) taxes?
    a) employer contributions to a qualified plan
    b) employee contributions to a qualified plan
    c) both a) and b)
    d) neither a) or b)

22) If the base contribution to a defined contribution plan is six percent, the maximum percentage contribution for wage
    earnings above the Social Security base is:
    a) 5.7%
    b) 6%
    c) 11.7%
    d) 15.2%

23) Kola Kapper has a $9,000 balance in her 401(k) account. The maximum she can borrow from the plan in 2010 is:
    a) 600
    b) 4,500
    c) 5,000
    d) 9,000

24) Which of the following is a defined benefit plan?
    a) Profit sharing plan
    b) Cash balance pension plan
    c) 401(k) plan
    d) ESOP
    e) Money purchase pension plan

25) Lullo Lard Company has a defined benefit plan with 100 nonexcludable employees (20 HC and 80 NHC). They are
    unsure if they are meeting all of their testing requirements. What is the minimum number of total employees that
    must be covered on a daily basis to conform with the requirements set forth in the IRC?
    a) 40.
    b) 50.
    c) 56
    d) 80.
    e) 100.
26) Which of the following is not a characteristic of a defined contribution plan?
    a) Employer contributions are limited to 25% of payroll
    b) The maximum contribution per participant is $49,000
    c) Each participant has their own individual account
    d) The maximum compensation which can be used in calculating employer contributions is $225,000

27) Which of the following qualified plans would allocate a higher percentage of the plan’s current contributions to a
    certain class or group of eligible employees?
               (1) An ESOP.
               (2) An age-based profit sharing plan.
               (3) A defined benefit pension plan.
               (4) A target benefit pension plan.
                    (a) 1 only.
                    (b) 1 and 3.
                    (c) 2 and 4.
                    (d) 1, 2, 3, and 4.

28) Manny Meredith, age 54, earns $300,000 per year and is a participant in his employer’s 401(k) plan. Ignoring the
    ADP Test requirements, what is the maximum amount that Meredith can defer under the 401(k) plan in 2010?
    a) $16,500.
    b) $22,000.
    c) $49,000.
    d) $55,000.

29) Sadys Shields, age 58, has earned $49,000 per year for the last six years and is a participant in her employer’s
    defined benefit plan. What is the maximum a mount of annual benefits Shields can receive from her employer’s
    defined benefit plan if she retires at age 64?
    a) $22,000
    b) $49,000.
    c) $195,000.
    d) $245,000.

30) Pern Plummer, age 20, has worked at Plummer Ports for the last three years. She has worked 1,000 hours per year
    and has received wages of $7,000. She would be eligible to participate in which of the following employer
    retirement plans?
    a) SEP
    b) 401(k)
    c) Defined benefit
    d) SIMPLE IRA
    e) Cash balance

31) Which of the following distributions from a Traditional IRA will be subject to a 10% early withdrawal penalty?
    a) KoKo Kapper, age 43, withdrew $5,400 from his Traditional IRA in 2009 to pay his daughter’s tuition at a
        private university
    b) Mabel Markus, age 63, withdrew $8,400 from her Traditional IRA in 2009 to pay buy a bass boat
    c) Koretta Kapper, age 33, withdrew $9,400 from her Traditional IRA in 2009 to repay a loan from her employer’s
        401(k) plan
    d) $753,900 of Alvin Allard’s Traditional IRA was distributed to his charming ex-wife Very Smiley pursuant to a
        QDRO

32) Mally Moser turned 70½ on March 2, 2006. He works as a grocery sacker at County Market and is an active
    participant in the company’s profit sharing plan. When is Moser required to begin taking minimum distributions from
    the profit sharing plan?
    a) March 2, 2006
    b) April 1, 2006
    c) April 1, 2007
    d) No distributions are required
33) Rerty Robards, age 55 and the owner of a computer repair shop, has come to you to establish a qualified plan. The
    repair shop, which employs mostly young employees, has had steady cash flows over the past few years, but
    Robards foresees shaky cash flows in the future as new computer prices decline. Thomas would like to allocate as
    much of the plan contributions to himself as possible. He is the only employee whose compensation is in excess of
    $100,000. Which of the following qualified plans would you advise Robards to establish?
    a) Profit sharing plan (Integrated).
    b) Defined benefit pension plan.
    c) Cash balance pension plan.
    d) Money purchase pension plan.

34) Which of the following statements regarding determination letters for qualified plans is true ?
    a) When a qualified plan is created, the plan sponsor must request a determination letter from the IRS.
    b) An employer who adopts a prototype plan must request a determination letter from the IRS.
    c) If a qualified plan is amended, the plan sponsor must request a determination letter from the Department of
        Labor.
    d)   A qualified plan which receives a favorable determination letter from the IRS may still be disqualified at a later
        date.

35) All of the following are acceptable reasons for an employer to terminate a qualified retirement plan except:
    a) The employer is no longer in a financial position to make further plan contributions.
    b) The employer no longer wants to maintain the plan because it must cover other employees other than just
          himself.
    c) The plan benefits are not meaningful amounts, and participants are limited in their ability to make deductible
          IRA contributions.
    d) To lower plan costs and ease administrative complexity, the employer wants to switch plan designs.

36) Mildred Markus, age 67, has just retired. She has a balance of $1,000,000 in her 401(k) account and is in good
    health. What is the maximum amount she should withdraw each year if she doesn’t want to risk liquidating her
    account before she dies?
    a) 10,000
    b) 20,000
    c) 40,000
    d) 45,000
    e) 80,000

37) What is the maximum percentage of pension plan assets that can be invested in securities of the employer?
    a) 0%
    b) 10%
    c) 50%
    d) 90%
    e) 100%

38) Sam Shields passed away April 24, 2007, leaving a $380,000 balance in his Traditional IRA. His charming spouse,
    Sally, age 24, is the beneficiary of his IRA. When must Sally withdraw the funds from Sam’s IRA?
    a) Over her life expectancy
    b) Over the next five years
    c) Immediately
    d) Over the next 10 years

39) Geroy Kapper, age 63, is the defending age group champion at Ironman New Zealand. His wife, Goretta, age 77,
    smokes 14 packs of cigarettes a day, eats 16 Big Macs for breakfast and sky dives every weekend using parachutes
    from the clearance rack at Rural King. What form of retirement benefits should Mr. Kapper elect from his defined
    benefit plan?
    a) lump sum
    b) he should have Mrs. Kapper waive her right to a survivor annuity and take a single life annuity
    c) he should elect a joint and survivor annuity
    d) he should elect the required minimum distribution

40) A cash balance plan is:
    a) a defined benefit plan
    b) a pension plan
    c) both a) and b)
    d) neither a) or b
41) Gelbert Kapper, single and age 53, had the following items of income:
Dividend Income: $1,200                 Farming Income: $600                   Alimony: $900
Wages: $1,400                           Interest Income: :$700                 Capital Loss: $-2,100
What is the maximum contribution Gelbert can make to a Roth IRA for this year?
     a) 0
     b) $800
     c) $2,000
     d) $2,900
     e) $6,000

42) Kic Kapper, a single 29 year old, deferred 10% of his salary, or $7,000, into a 401(k) plan sponsored by his
    employer during 2009. What is the maximum deductible IRA contribution Kapper can make during 2009 to a
    traditional IRA?
    a) $0.
    b) $1,000.
    c) $4,000.
    d) $5,000
    e) $16,500.

43) At the age of 57, Gabby Kapper converted his traditional IRA, valued at $45,000, to a Roth IRA. At age 60, Kapper
    took a distribution from this Roth IRA of $100,000 to buy a new car for his daughter. Which of the following
    statements is true with regards to the distribution from the Roth IRA?
    a) $100,000 will be subjected to ordinary income tax and penalty.
    b) $55,000 will be subjected to ordinary income tax and penalty.
    c) $55,000 will be subjected to ordinary income tax but no penalty.
    d) $55,000 will not be subjected to ordinary income tax but will be subjected to penalty.

44) Sudolph Shields, age 54 and single, has compensation this year of $85,000. His employer does not sponsor a
    qualified plan, so Shields would like to contribute to a Roth IRA. What is Shields’s maximum contribution for this year
    to the Roth IRA?
    a) $0.
    b) $5,000.
    c) $6,000.
    d) $15,500.

45) What is the automatic form of benefits for a married participant in a defined benefit plan?
    a) lump sum distribution
    b) joint and survivor annuity
    c) single life annuity
    d) required minimum distribution

46) NuNu Nasti, age 54, earns $100,000 annually from Kapper Incorporated. Kapper sponsors a SIMPLE 401(k), and
    matches all employee deferrals 100% up to a 3% contribution. Assuming Nasti defers the maximum to her SIMPLE
    401(k), what is the total contribution to the account in 2009 including both employee and employer contributions?
    a) $11,500.
    b) $13,000.
    c) $14,500.
    d) $16,500.
    e) $17,000

47) Kledu Kapper, age 42, had the following items of income:
Gambling Income: $1,200                  Child Support: $2,300                   Rent Income: $900
Wages: $2,200                            Municipal Bond Interest:$700            Capital Gain: $1,400
Kapper also contributed $1,000 to his Roth IRA during the year. What is the maximum deduction Kapper can take for an
IRA contribution for this year?
     a) $1,200.
     b) $2,400.
     c) $3,000.
     d) $4,000.
     e) $5,000
48) Korbert Kapper, a married 29 year old, deferred 10% of his salary, or $10,000, into a 401(k) plan sponsored by his
    employer this year. His wife, Smellie, age 76, is a volunteer mountain rescue climber. Assuming the Kappers have no
    other income, what is the maximum contribution Smellie can make to her Roth IRA for this year?
    a) $0.
    b) $1,000.
    c) $5,000
    d) $6,000.

49) Margaret Meredith earned $4,000 during January of this year. She was unemployed for February and March, and
    during April she earned an additional $3,000. She did not work again until December, at which time she earned
    $1,200. How many quarters of coverage has Meredith earned for Social Security during this year?
    a) 1.
    b) 3.
    c) 4.
    d) 7.

50) Which of the following statements is true?
    a) Social Security payments are not adjusted for inflation.
    b) A worker’s average indexed monthly earnings (AIME) will be their Social Security benefit at retirement.
    c) An individual born after 1960 will reach full retirement age for Social Security purposes at the age of 67.
    d) A 70 year old worker will have their Social Security benefits reduced based on earnings from their current
        employment

51) Manda Moser, age 74, works as a cocktail waitress at the trendy Club Intestacy. Her wages were $3,800 during
    2010. Which of the following statements are true?
        i)   Moser could contribute $3,800 to a Roth IRA in 2010
        ii) Moser must take a distribution from her Traditional IRA in 2010
        iii) Moser’ wages will reduce her Social Security benefits
                 (a) i) only
                 (b) i) and iii)
                 (c) i) and ii)
                 (d) ii) and iii)

52) Mabel Meredith is 63 and married. She has a balance of $870,000 in her Traditional IRA. Her adjusted gross
    income is $191,000. What is the maximum a mount she can convert from a Traditional IRA to a Roth IRA in 2010?
    a) 0
    b) $6,000
    c) $9,000
    d) $100,000
    e) $870,000

53) Which of the following investments would you not recommend for a Roth IRA?
    a) a REIT
    b) Zero coupon corporate bond
    c) United States gold coins
    d) Zero coupon municipal bond
    e) A double short Russell 5000 ETF

54) The following statements concerning retirement plan service requirements for qualified plans are correct EXCEPT:
    a) A 22 year-old employee who has worked at least 1,000 hours during the initial 12-month period after being
         employed is credited with one year of service.
    b) A 19 year-old employee who has worked at least 2,000 hours during the initial 12-month period after being
         employed is credited with no years of service.
    c) An employer has the option of increasing the one-year of service requirement to 2 years of service.
    d) Once an employee attains the service requirement of the plan, the employer cannot make the employee wait
         more than an additional month to be considered eligible to participate in the plan.

55) Plummer Puds has a noncontributory qualified profit sharing plan with 210 employees in total, 140 who are
    nonexcludable (40 top dogs and 100 peons). The plan covers 20 top dogs and 40 peons. The peons receive an
    average of 4.5% benefit and the top dogs receive 6.5%. Which of the following statements is (are) correct?
             (1) The plan meets the ratio percentage test.
             (2) The plan fails the average benefits test.
                  (a) 1 only.
                  (b) 2 only.
                  (c) Both 1 and 2.
                  (d) Neither 1 or 2
56) Ponda Plummer, age 63, is a participant in the stock bonus plan of Shields Smocks, Inc., a closely held corporation.
    Plummer received contributions in shares of Shields Smocks stock to the stock bonus plan and Shields Smocks, Inc.
    had income tax deductions for 1,000 shares at an average price of $16.00 per share. Plummer terminates
    employment in 2006 and takes a distribution from the plan of 1,000 shares of Shields Smocks, Inc., having a fair
    value of $24,000. Which of the following correctly describes Plummer’s tax consequences for 2006 from this
    distribution if Plummer does not sell the Shields Smocks stock until 2009?
    a) Plummer has ordinary income of $16,000 and long term capital gain of $8,000 in 2006.
    b) Plummer has long term capital gain of $24,000 in 2006.
    c) Plummer has ordinary income of $16,000 in 2006.
    d) Plummer has a long term capital gain of $8,000 in 2006.

57) Assuming Plummer sells the shares for $28,000 in 2009, which of the following correctly describe Plummer’ tax
    consequences for 2009?
    a) Plummer has long term capital gain of $4,000
    b) Plummer has long term capital gain of $8,000
    c) Plummer has long term capital gain of $12,000
    d) Plummer has ordinary income of $4,000

58) Nabbi Nasti owns Shields Solutions, Inc. (SSI) and sells 100% of the company stock on July 1 of the current year to
    an ESOP for $3,000,000. Nasti had an adjusted basis in the SSI stock of $450,000. If Nasti reinvests in qualified
    replacement securities before the end of the current year, which of the following statements is true?
    a) Nasti will not recognize long term capital gain or ordinary income in the current year.
    b) Nasti must recognize $2,550,000 of long term capital gain in the current year.
    c) Nasti must recognize $450,000 of ordinary income in the current year.
    d) If Nasti dies before selling the qualified replacement securities, his heirs will have an adjusted taxable basis in
         the qualified replacement securities of $450,000, Nasti’s carryover adjusted basis.

59) Which of the following statements concerning stock bonus plans and ESOPs is (are) true?
             (1) They give employees a stake in the company through stock ownership.
             (2) They give employees a diversified portfolio for the first five years of employment.
             (3) They allow taxes to be delayed on stock appreciation gains.
             (4) They create a cash-flow problem for employers by requiring them to offer a repurchase option (a.k.a.
                  put option) if their stock is not readily tradable on an established market.
                  (a) 1 only.
                  (b) 1,2,and 3.
                  (c) 1,3, and 4.
                  (d) 1,2,3 and 4.

60) Mally Moser turned 70½ in November of 2010. He was a participant in his employer’s profit sharing plan. His profit
    sharing plan had an account balance of $250,000 on December 31 of this year, and $200,000 on December 31 of
    last year. According to the Uniform Lifetime Table the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6
    respectively . What is Moser’ approximate required minimum distribution for 2010?
    a) $0.
    b) $7,300.
    c) $7,547.
    d) $9,124.

61) Mally Moser turned 70½ in November of 2010. He was a participant in his employer’s profit sharing plan. His profit
    sharing plan had an account balance of $250,000 on December 31, 2011 and $200,000 on December 31, 2010.
    According to the Uniform Lifetime Table the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6 respectiv ely.
    What is Moser’ approximate required minimum distribution for 2011?
    a) $0.
    b) $7,300.
    c) $7,547.
    d) $9,124

62) Meta Meredith operates Meredith Moose, a sole proprietorship. The company sponsors a profit sharing plan. The
    business had net income of $200,000 and paid self employment taxes of $20,000 during the year. If Meredith makes
    a 25% of salary contribution on behalf of all of his employees to the profit sharing plan, how much is the
    contribution to the profit sharing plan on behalf of Meredith?
    a) 35,000
    b) 38,000
    c) 45,000
    d) 49,000
    e) 51,250
63) If an employee contributes to a 401(k) plan because of a negative election, what percent of his salary will be
    contributed to the plan after ten years if the employee does nothing to change the amount of the negative election?
    a) 1%
    b) 3%
    c) 6%
    d) 20%
    e) 25%

64) Mally Moser saves $2,000 per year for 10 years at the end of each year starting at age 26 and ending at age 35. He
    invests the funds in an account earning 12% annually. Moser stops investing at age 35 but continues to earn 12%
    annually until she reaches the age of 65. What is the value of Moser’ account at age 65?
    a) $35,097
    b) $482,665
    c) $1,051,517
    d) $1,534,183

65) Melbert Moser’ employer uses a unit credit formula to determine employees’ annual retirement benefits of two
    percent per years of service times the average of the three highest years consecutiv e salary. Mr. Moser currently
    earns $80,000, has 20 years of service and anticipates a five percent raise for the next two years. Mr. Moser plans
    to retire three years from now. What will be his annual retirement benefit?
    a) 33,627
    b) 36,800
    c) 38,671
    d) 40,000
    e) 46,000

66) Gretchen Kapper is currently 60 years old. If she retires today she will receive an annual benefit from her
    employer’s defined benefit plan of $45,000. Ms. Kapper expects to live to age 95. What will be the increase in the
    current value of her defined benefit plan benefits assuming she works one more year before she retires and
    increases her annual benefits to $46,000 if the risk-free rate of return is 6%?
    a) -8,513
    b) 8,513
    c) 16,374
    d) 222,112
    e) 660,934

67) Nelma Nasti has compensation of $210,000 in 2008. Her employer, Plummer Flip Flops, has a profit sharing plan
    integrated for Social Security. The plan contributes 8% of base compensation and 13.7% of excess compensation
    over $102,000. What is the total contribution to Ms. Nasti’s account in 2008?
    a) $8,160
    b) $14,796
    c) $22,956
    d) $28,770
    e) $46,000

68) The non-highly compensated employees (peons) of Shields Saws contributed 1% of their salary to the company’s
    401(k) plan in 2010. What percent of salary are the company’s highly compensated employees (top dogs) allowed
    to contribute to company’s 401(k) plan in 2010?
    a) 1%
    b) 2%
    c) 3%
    d) 5%
    e) 6%

69) Kedith Kapper, age 53, contributes 8% of her $50,000 salary to Nasti Trunk’s 401(k) plan. Her employer matches
    100% of the first 3% of employee contributions and 50% of employee contributions from 3% to 7%. What is the
    amount of Kapper’s income that will be subject to income taxes?
    a) $46,000
    b) $50,000
    c) $51,500
    d) $52,500
    e) $56,500
70) The non-highly compensated (peons) employees of Markus Mops contributed 3.0% of their compensation to the
    company’s 401(k) plan. The highly compensated (top dog) employees of Markus Mops contributed 6.5% of their
    compensation to the company’s 401(k) plan. Which of the following corrective actions will allow the company to
    pass the ADP test?
         i)   a contribution to all non-highly compensated employees’ accounts to increase the non-highly
              compensated’s ADP to 4.5%
         ii) a matching contribution to all non-highly compensated employees’ accounts to increase the non-highly
              compensated’s ADP to 6.0%
         iii) a corrective distribution from all highly compensated employees’ accounts to decrease the highly
              compensated’s ADP to 6.0%
    a) i) only
    b) i) and ii)
    c) i) and iii)
    d) ii) and iii)
    e) iii) only

71) Which of the following is true regarding automatic enrollment in a safe harbor 401(k) plan?
        i)    a participant’s contribution will increase in the second year unless the participant elects out of automatic
              enrollment
        ii) employer’s who auto-enroll new employees are not required to match employee contributions
        iii) a participant has the right to have his contributions refunded to him
    a) i) only
    b) i) and ii)
    c) i) and iii)
    d) ii) and iii)
    e) iii) only

72) Kapper Kites has an age weighted profit sharing plan. Musty Meredith, age 60, has a salary of $80,000 during the
    year. The company’s other employee, Navendar Nasti, age 25, has a salary of $20,000. If Kapper Kites contributes
    $30,000 to the profit sharing plan during the year and the plan’s normal retirement age is 65 and uses a discount
    rate of 8%, what is the amount of the contribution that will be allocated to the account of Musty Meredith?
    a) $ 6,000
    b) $20,000
    c) $20,417
    d) $29,501
    e) $30,000

73) What is the amount of the contribution that will be allocated to the account of Navendar Nasti?
    a) $ 499
    b) $ 981
    c) $9,583
    d) $10,000
    e) $24,000

74) Napalm Nasti purchased a single premium annuity for $100,000. She will receive $30,000 per year for the
    remainder of her life. Her life expectancy is 20 years. What portion of the annual annuity payments will be subject
    to Federal income tax?
    a) 0
    b) 10,000
    c) 15,000
    d) 20,000
    e) 25,000

75) Which of the following individuals must take a required minimum distribution from qualified plans during 2009?
              (1) Mildred Meredith, age 72, has a Roth IRA
              (2) Sally Shields, age 73, is a participant in the 401(k) of Google, Inc., where she is a full-time
                   dishwasher
                   (a) (1) only
                   (b) (2) only
                   (c) Both (1) and (2)
                   (d) Neither (1) or (2)
76) On Valentine’s Day Gelly Kapper, age 73, asked Kester Kookie, age 23, to marry her. If Kester accepts:
              (1) Gelly’s required minimum distributions from Joey’s Hot Dog 401(k) plan will be decreased
              (2) Gelly’s payments from County Market’s defined benefit plan will be increased if he receives a joint
                   and surviv or annuity
                   (a) (1) only
                   (b) (2) only
                   (c) Both (1) and (2)
                   (d) Neither (1) or (2)

77) Kola Kapper, age 28, died last week. Her husband, Karry Kapper, age 83, was the primary beneficiary of Kola’s
    Traditional IRA. Karry should:
              (1) Roll Kola’s IRA into his Traditional IRA
              (2) Continue taking distributions based on the required minimum distributions for Kola
                    (a) (1) only
                    (b) (2) only
                    (c) Both (1) and (2)
                    (d) Neither (1) or (2)

78) Sally Shields, age 81, died last week. Her son, Sam Shields, age 43, was the primary beneficiary of Sally’s
    Traditional IRA. Sam can:
               (1) withdraw the entire balance from the IRA any time in the next 10 years
               (2) take distributions based on his life expectancy
                    (a) (1) only
                    (b) (2) only
                    (c) Both (1) and (2)
                    (d) Neither (1) or (2)

79) Ki Li Kapper, age 54, has worked for Robards Rats for 15 years. He earns $450,000 per year and is covered by a
    qualified defined benefit pension plan with a funding formula of (1.5% x Years of Service x Last Years Salary). What
    is Kapper’s accrued annual benefit under this defined benefit plan given the funding formula, his earnings and his
    years of service?
    a) $20,500.
    b) $49,000.
    c) $55,125
    d) $101,250.

80) The owners of Shields Snow want to establish a qualified plan. Their primary goal is to retain employees as they are
    currently experiencing a high rate of employee turnover among their young, low paid employees. Which of the
    following would assist the company in accomplishing this goal?
    a) Integrating a profit sharing plan with Social Security
    b) Selecting an age weighted profit sharing plan
    c) Establishing a target benefit plan
    d) Establishing a 401(k) plan with three year vesting

81) Which of the following plans would have the lowest administration costs?
    a) safe harbor 401(k) plan
    b) defined benefit plan
    c) target benefit plan
    d) an ESOP
    e) a stock bonus plan

82) Anti-allienation:
               (1) prevents employees from pledging their retirement benefits as collateral for a loan
               (2) requires employers to diversifying employees investments in a retirement plan
               (3) prohibits a fiduciary from charging fees for managing qualified plan assets
                    (a) (1) only
                    (b) (2) only
                    (c) (1) and (2)
                    (d) (1) and (3)
                    (e) (2) and (3)
83) Benefits from the following qualified plans are guaranteed by the PBGC:
    a) 401(k) plan
    b) ESOP
    c) safe harbor 401(k) plan
    d) defined benefit plan
    e) target benefit plan

84) Napalm Nasti, age 44, is single. During 2009 she earned $12,000 as an alligator psychiatrist. What is the latest
    date she can make a contribution to her Traditional IRA for 2010?
    a) January 1, 2009
    b) April 15, 2009
    c) October 15, 2009
    d) April 15, 2010
    e) October 15, 2010

85) Kernie Kapper, age 28, is single. He has made contributions totaling $8,000 in 2005 and 2006 to his Roth IRA which
    now has a value of $20,000. If Kernie withdraws $10,000 from his Roth IRA in 2010 to buy a dairy cow, what
    amount of tax, including penalties, will he pay on the distribution assuming his marginal tax rate is 25%?
    a) 0
    b) 500
    c) 550
    d) 700
    e) 2,500

86) Which of   the following can not be held in an IRA account as an investment?
        i)      American Eagle gold coins
        ii)     Variable life insurance
        iii)    An apartment building
        iv)     A painting of Brittany Tears
                     (a) (i) and (ii)
                     (b) (i), (ii) and (iii)
                     (c) (ii) and (iii)
                     (d) (ii) and (iv)
                     (e) (i), (ii) (iii) and (iv)

87) K. R. Kapper, age 65, is single. He has made contributions of $4,000 in both 2001 and 2002 to his Roth IRA which
    now has a value of $30,000. What is the maximum a mount L.R. can withdraw from this Roth IRA in 2009 to
    purchase a home and pay no income tax or penalties?
    a) 0
    b) 8,000
    c) 10,000
    d) 22,000
    e) 30,000

88) K.Z. Kapper, age 24, is single. During 2009 she earned $11,000 as an elephant orthodontist. What is the latest
    date she can make a contribution to her SEP for 2009?
    a) December 31, 2009
    b) April 15, 2009
    c) August 15, 2010
    d) October 15, 2010
    e) December 31, 2010

89) Sumpy Shields, a single 69 year old, earned $427,500 as a cocktail waitress during 2010. Her employer does not
    sponsor a qualified plan. What is the maximum deductible IRA contribution Shields can make during 2010 to a
    Traditional IRA assuming her only income was her salary?
    a) $0.
    b) $3,500.
    c) $4,000
    d) $5,000.
    e) $6,000
90) Krusty Kapper, a single 78 year old, earned $564,900 as a cocktail waitress during 2010. Her employer does not
    sponsor a qualified plan. What is the maximum contribution Kapper can make during 2010 to a Roth IRA
    assuming her only income was her salary?
    a) $0.
    b) $4,000
    c) $5,000.
    d) $6,000
    e) $13,500

91) Not So Krusty Kapper, a single 28 year old, earned $564,900 as a cocktail waitress during 2010. Her employer does
    not sponsor a qualified plan. She has a $2,984,300 balance in her Traditional IRA. When is the earliest she can
    take distributions from her Traditional IRA and not pay a 10% penalty?
    a) Now, if she continues to take equal distributions every year
    b) Age 59 ½
    c) Age 62
    d) Age 65 years, 10 months
    e) Age 70 ½

92) Which of the following statements are true?
    a) Traditional IRAs can be used as collateral for auto loans
    b) 401(k) plans typically offer more investment options than a Traditional IRA
    c) There are no required minimum distributions for a Roth IRA during the original owner’s lifetime
    d) Individuals are allowed to borrow from their Traditional IRA if they repay the loan balance prior to age 59 ½
    e) Distributions of company stock from a Traditional IRA are taxed at capital gains rates on the Net Unrealized
        Appreciation

93) Which of the following statements is true?
    a) Social Security payments are not adjusted for inflation if you begin receiving payments prior to age 65.
    b) An individual who has elected to begin receiving Social Security benefits at age 62 will have their Social Security
        benefits reduced if they continue to work and earn $12,000
    c) Your highest 20 years of earnings are used in calculating your Social Security benefits.
    d) An individual over 66 may collect Social Security benefits based on their earnings record or their spouse’s
        earnings record
    e) Social Security benefits are equal to 32% of a worker’s PIA.

94) Gelilah Kapper, age 89, died in his sleep last week. Which of the following individuals will be eligible for Social
    Security benefits after his death?
          i)   Her husband of three years, Delbert, age 27
          ii) Her child, Dilly, age 19
          iii) Her charming ex-husband of twelv e years, Doorknob, age 61
                    (a) i) and ii)
                    (b) ii) and iii)
                    (c) i) and iii)
                    (d) ii) only
                    (e) iii) only

95) Thelma Nasti will turn 62 in 2008. She can begin receiving monthly Social Security benefits of $758 in 2008, or
    $1,000 in 2012 or $1,300 in 2016. She anticipates she will live to be 90 years old and inflation will average three
    percent during her lifetime? What is the current present value of her benefits if she begins to collect them at age
    66?
    a) $172,168
    b) $181,956
    c) $184,444
    d) $225,265
    e) $234,404

96) If a worker elects to begin collecting Social Security benefits at age 62, what percent of their normal Social Security
    benefits will they currently receiv e?
    a) 32%
    b) 50%
    c) 60%
    d) 75%
    e) 85%
97) If a worker elects to delay collecting Social Security benefits until age 70, what is the percent increase in their Social
    Security benefits?
    a) 32%
    b) 50%
    c) 60%
    d) 75%
    e) 85%

98) Which of the following covers doctors’ services for individuals age 65 and older?
    a) Medicare Part A
    b) Medicare Part B
    c) Medicare Part C
    d) Medicare Part D
    e) None of the above

99) Which of the following covers prescription drugs for individuals age 65 and older?
    a) Medicare Part A
    b) Medicare Part B
    c) Medicare Part C
    d) Medicare Part D
    e) None of the above

								
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