CPC Retirement Plan Design & Administration 2

Question 1

A small business owner wants a plan that allows discretionary employer contributions but does NOT require mandatory contributions in unprofitable years. Which plan type best meets this need?

Accepted Answer

Profit-sharing plan

Answer

Profit-sharing plans allow employers to make discretionary contributions each year, including zero contributions in years when the business is unprofitable.

Question 2

Under IRC §416, a defined benefit plan is considered top-heavy when the present value of accrued benefits for key employees exceeds what percentage of the total?

Accepted Answer

60%

Answer

Under IRC §416, a plan is top-heavy when more than 60% of the aggregate accrued benefits (or account balances in DC plans) belong to key employees.

Question 3

Which vesting schedule is the FASTEST allowable for employer matching contributions under ERISA?

Accepted Answer

2-year cliff

Answer

Matching contributions must vest on at least a 2-year cliff or 6-year graded schedule, making 2-year cliff the fastest permissible schedule for matching.

Question 4

A 401(k) plan fails the ADP test. Which corrective method allows the plan to avoid excise taxes by returning excess contributions within 2.5 months after plan year end?

Accepted Answer

Distribution of excess contributions

Answer

Distributing excess contributions (and allocable income) within 2.5 months after year-end avoids the 10% excise tax on the employer for late correction.

Question 5

An employee terminates vested participation in a defined benefit plan. When must the plan begin distributions if the employee does not elect otherwise and has reached normal retirement age?

Accepted Answer

Within 60 days of the later of plan year end or attainment of normal retirement age

Answer

ERISA requires that benefits be available within 60 days of the close of the plan year in which the later of normal retirement age attainment or plan participation occurs.

(CPC) Certified Pension Consultant Practice Test

(CPC) Certified Pension Consultant Practice Test

CPC Retirement Plan Design & Administration 2