CPS Investment Strategies 3

Question 1

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

Accepted Answer

3 years

Answer

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

Question 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?

Accepted Answer

10% early withdrawal penalty

Answer

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

Question 3

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

Accepted Answer

SEP IRA

Answer

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

Question 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:

Accepted Answer

Direct rollover

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

(CPS) Certified Payroll Specialist Practice Test

(CPS) Certified Payroll Specialist Practice Test

CPS Investment Strategies 3