Practice Test Geeks(CPS) Certified Payroll Specialist Practice Test
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Investment Strategies Flashcards

7 cards from real CPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Under ERISA, what is the maximum vesting period allowed for cliff vesting in a 401(k) employer match?

    Answer: 3 years

    ERISA requires cliff vesting for employer matching contributions to be fully vested after no more than 3 years of service.

  2. A payroll specialist processes a hardship withdrawal from a 401(k) for an employee under age 59½. What penalty applies in addition to ordinary income tax?

    Answer: 10% early withdrawal penalty

    Distributions from a 401(k) before age 59½ are generally subject to a 10% early withdrawal penalty on top of ordinary income taxes.

  3. Which plan type is most appropriate for a self-employed individual who wants to contribute up to 25% of net self-employment income?

    Answer: SEP IRA

    A SEP IRA allows self-employed individuals to contribute up to 25% of net self-employment earnings, up to the annual IRS maximum.

  4. An employee leaves a company and wants to move their 401(k) balance to a new employer's plan without tax consequences. This transaction is called a:

    Answer: Direct rollover

    A direct rollover transfers funds from one qualified plan to another without triggering taxes or penalties.

  5. What is the primary distinction between a money market fund and a stable value fund in a 401(k) plan?

    Answer: Stable value funds typically offer higher returns with similar low risk due to insurance contracts

    Stable value funds use insurance contracts (book value accounting) to offer higher yields than money market funds at comparable risk levels.

  6. Which federal law governs the fiduciary responsibilities of retirement plan administrators and investment managers?

    Answer: ERISA

    ERISA (Employee Retirement Income Security Act) sets fiduciary standards for those managing employee benefit and retirement plans.

  7. An employee exercises non-qualified stock options (NQSOs). When is the spread subject to payroll taxes?

    Answer: At exercise date

    With NQSOs, the spread between exercise price and fair market value is treated as ordinary compensation income subject to payroll taxes at exercise.