Discuss on Profit Sharing

Exam: 412760RR Profit-Sharing and Similar Plans

1. James earns $80,000 per year. What is the limit on his deductible contributions if he has a simplified employee pension?

A. $15,000

B. $10,000

C. $45,000

D. $20,000

 

2. What is one reason that companies often allow new employees to immediately participate in profit sharing plans?

A. The administration of a profit-sharing plan is much easier than that of other pension plans.

B. Profit-sharing plans have no upper or lower age limits.

C. Profit-sharing plans have no vesting provisions to deal with.

D. Companies are required by law to provide this opportunity for new employees.

 

3. The Carbon Company makes allocations to employee accounts that meet the nondiscrimination requirements; the total employer contributions are $10,000. The average salary of all employees is $67,000. If Laverne’s salary is $69,000, how much, rounded up to the nearest dollar, would be allocated to her?

A. $10,299

B. $10,198

C. $9,755

D. $23,448

 

4. Tamara would like to start saving some of her salary so that it won’t be taxed. She has decided to save $9,000 annually, but she would also like to have the freedom to withdraw her money if she needs it. If you were her employee benefit specialist, which one of the following plans would you recommend that she research?

A. SIMPLE

B. IRA

C. 401(k)

D. 403(b)

 

5. You’re advising an employee about your company’s 401(k) plan and how it will benefit him. You explain that employees can put money into their accounts prior to paying taxes and choose the amount they would like to save. What other advantage does a 401(k) have for employees?

A. It can be fully funded by salary reduction by employees.

B. It reduces unemployment.

C. It provides access to their money if needed during employment.

D. It has lower contribution limits.

 

6. Which one of the following statements about retirement plans is correct?

A. Retirement plans are typically designed with liberal eligibility and vesting rights.

B. A waiting period to enter a plan cannot exceed 6 months.

C. The more flexible the plan, the higher the administrative cost.

D. Retirement plans are considered a benefit only to those employees who are within 10 years of retirement.

 

7. Kim has decided to buy a condo so that she can rent it to tenants. She decides to take a loan from her qualified retirement plan for the down payment and closing costs. How much time does she have to repay this loan?

A. She must repay the loan before retirement or termination.

B. She must repay one-half the loan within one year.

C. There’s no set amount of time during which she must repay the loan.

D. She must repay the loan within five years.

 

8. What aspect of a 401(k) plan makes it different from a profit-sharing plan?

A. Companies are required by law to provide this opportunity for new employees.

B. Employees get to choose which stock to invest in.

C. Employers acquire a higher cash flow because of the insurgence of employer stock purchases.

D. Employees decide how much of their compensation is deferred.

 

9. Which one of the following statements is true of 401(k) retirement plans?

A. Integration of a 401(k) plan with Social Security is easily managed.

B. Because a 401(k) plan is a qualified plan, its administration is simple and uncomplicated.

C. A 401(k) plan permits higher contribution levels than IRAs.

D. Even though a 401(k) plan is funded entirely on the basis of employee salary deferrals, the employer enjoys no tax advantages from this fact.

 

10. Under regulations, a stock bonus plan is a qualified-contribution plan similar to a profit-sharing plan.

What, however, makes a stock bonus plan different from a qualified-contribution plan?

A. The plan contribution formula is based on employee compensation.

B. Employees can also contribute to after-tax savings.

C. Employers’ contributions may be made in cash.

D. Dividends can’t be re-invested to increase the participants’ accounts.

 

11. Sam isn’t quite sure what he wants to do with his retirement savings, but he wants to make sure he has the flexibility to manage his funds in numerous different ways. What type of distribution would be best for Sam?

A. Life annuity with period certain

B. Straight-life annuity

C. Delayed benefit payment

D. Lump-sum option

 

12. When employer stock is used in qualified plans, which one of the following situations is a win-win situation for both the employer and the employee?

A. The price of the stock is always at a discount rate.

B. A market can be created for employer stock.

C. Employees receive an ownership interest in the company.

D. The employer can obtain a deduction for noncash contributions to the plan.

 

13. The Marx company makes allocations to employee accounts that meet the nondiscrimination requirements; the total employer contributions are $10,000. The average salary of all employees is $67,000. If Jamar’s salary is $58,000, how much, rounded up to the nearest dollar, would be allocated to him?

A. $28, 285

B. $20,896

C. $8,657

D. $10,786

 

14. Lassitude, Inc., a new and rapidly growing company, doesn’t have a qualified plan. However, the company would like to provide a salary savings plan for its employees in order to retain its current and new employees. Assuming that Lassitude decides to implement a SIMPLE, which one of the following statements is true?

A. Lassitude, Inc. has 100 or fewer employees.

B. An independent contractor would have to be hired to deal with the complicated paperwork involved.

C. Lassitude management will have to disclose to its employees that their savings won’t be portable.

D. Lassitude employees can rest assured that their savings will provide adequate retirement benefits.