CPC CPC Consulting Skills & Client Advisory 2 — Questions and Answers
Question 1: A CPC is advising a nonprofit organization on its retirement plan options. Which plan type is available exclusively to 501(c)(3) organizations and public schools?
- 457(b) deferred compensation plan
- 403(b) tax-sheltered annuity plan (Correct answer)
- 408(k) SEP plan
- 401(a) governmental plan
Correct answer: 403(b) tax-sheltered annuity plan
IRC Section 403(b) plans are available exclusively to public schools and 501(c)(3) tax-exempt organizations, distinguishing them from 401(k) plans available to for-profit employers.
Question 2: When a CPC advises a plan sponsor on a corrective amendment under the IRS Employee Plans Compliance Resolution System (EPCRS), which program allows self-correction of insignificant operational failures without IRS submission?
- Voluntary Correction Program (VCP)
- Self-Correction Program (SCP) (Correct answer)
- Audit Closing Agreement Program (Audit CAP)
- Determination Letter Program
Correct answer: Self-Correction Program (SCP)
The Self-Correction Program (SCP) under EPCRS allows plan sponsors to self-correct insignificant operational failures at any time and significant failures within specific timeframes without filing with the IRS.
Question 3: A plan sponsor wants to add auto-enrollment to their 401(k) plan. What initial default deferral rate does the SECURE 2.0 Act mandate for new automatic enrollment plans adopted after December 29, 2022?
- 1% of compensation
- 3% of compensation (minimum)
- 3% to 10% of compensation with annual 1% escalation (Correct answer)
- 5% of compensation
Correct answer: 3% to 10% of compensation with annual 1% escalation
SECURE 2.0 requires new automatic enrollment plans to start at a minimum 3% deferral rate and automatically escalate by at least 1% per year until reaching at least 10% (but not more than 15%).
Question 4: A plan consultant recommends implementing a Qualified Default Investment Alternative (QDIA). What protection does a QDIA provide plan fiduciaries?
- It eliminates all fiduciary liability for investment losses
- It provides fiduciary relief for investment losses resulting from participant failure to direct investments, if DOL QDIA regulations are followed (Correct answer)
- It guarantees a minimum investment return for participants
- It exempts the plan from annual 5500 filing requirements
Correct answer: It provides fiduciary relief for investment losses resulting from participant failure to direct investments, if DOL QDIA regulations are followed
DOL QDIA regulations provide fiduciary relief for investment losses incurred by participants who fail to direct their own investments, provided the plan satisfies all QDIA requirements including proper notice.
Question 5: A client asks about the differences between a SIMPLE IRA and a SIMPLE 401(k). Which statement is correct?
- Both plans are subject to the same annual contribution limits and have identical plan document requirements
- SIMPLE IRAs are not subject to the nondiscrimination tests required for SIMPLE 401(k) plans, and SIMPLE 401(k)s must be in plan document form (Correct answer)
- SIMPLE 401(k) plans are available to employers with up to 500 employees
- SIMPLE IRAs require more complex administration than SIMPLE 401(k) plans
Correct answer: SIMPLE IRAs are not subject to the nondiscrimination tests required for SIMPLE 401(k) plans, and SIMPLE 401(k)s must be in plan document form
SIMPLE 401(k) plans must be established via a plan document and satisfy ADP/ACP safe harbor rules, while SIMPLE IRAs are funded directly to employee IRAs and are exempt from most ERISA testing requirements.
Question 6: When conducting a plan audit readiness review, which document is the CPC most critical to verify is current and properly adopted?
- The most recent Summary Annual Report (SAR)
- The plan's adoption agreement or restated plan document with all required amendments (Correct answer)
- The investment policy statement (IPS)
- The most recent actuarial valuation report
Correct answer: The plan's adoption agreement or restated plan document with all required amendments
An outdated or improperly adopted plan document is one of the most common audit findings; the plan must operate in conformance with its terms, which requires timely adoption of mandatory and discretionary amendments.
CPC CPC Consulting Skills & Client Advisory 2
A CPC is advising a nonprofit organization on its retirement plan options.
Which plan type is available exclusively to 501(c)(3) organizations and public schools?