CRPC Employer-Sponsored Retirement Plans 5 — Questions and Answers
Question 1: What is the required beginning date for required minimum distributions (RMDs) for most participants in employer-sponsored plans under SECURE 2.0?
- April 1 following the year the participant turns 70½
- April 1 following the year the participant turns 72
- April 1 following the year the participant turns 73 (Correct answer)
- December 31 of the year the participant turns 73
Correct answer: April 1 following the year the participant turns 73
Under SECURE 2.0 (effective 2023), the RMD starting age increased to 73, with distributions due by April 1 of the following year.
Question 2: A company establishes an ESOP (Employee Stock Ownership Plan). Which of the following best describes how an ESOP works?
- Employees purchase company stock at a discount through payroll deductions
- The plan trust borrows money to purchase employer stock and allocates shares to employee accounts (Correct answer)
- Employees receive stock options that can be exercised after a vesting period
- The employer deposits cash that employees individually invest in company stock
Correct answer: The plan trust borrows money to purchase employer stock and allocates shares to employee accounts
A leveraged ESOP borrows money to buy employer stock, repays the loan with employer contributions, and allocates shares to participants over time.
Question 3: Under the 'still working' exception to RMDs, a participant in a 401(k) who continues working past age 73 can defer RMDs from their current employer's plan. Which group does NOT qualify for this exception?
- Part-time employees working fewer than 20 hours per week
- Non-owner employees still actively employed
- 5% owners of the sponsoring employer (Correct answer)
- Employees who have transferred from a subsidiary company
Correct answer: 5% owners of the sponsoring employer
5% owners must begin RMDs at age 73 regardless of employment status and cannot use the still-working exception.
Question 4: Which of the following retirement plans is NOT subject to ERISA's fiduciary standards?
- 401(k) plan sponsored by a private corporation
- Defined benefit pension plan for a manufacturing company
- 403(b) plan for a private nonprofit hospital
- Governmental 457(b) plan for a state university (Correct answer)
Correct answer: Governmental 457(b) plan for a state university
Governmental plans are exempt from ERISA, so a state university's 457(b) plan is not subject to ERISA fiduciary rules.
Question 5: A Qualified Domestic Relations Order (QDRO) allows a divorcing spouse to receive a share of a participant's retirement plan benefits. Which type of plan is NOT subject to a QDRO?
- 401(k) plan
- Defined benefit pension plan
- 403(b) plan
- IRA (Correct answer)
Correct answer: IRA
QDROs apply to ERISA-governed qualified plans; IRAs are divided using a transfer incident to divorce, not a QDRO.
Question 6: What does 'annual additions' include when testing against the Section 415 limit for defined contribution plans?
- Only employee salary deferrals
- Employee deferrals, employer contributions, and after-tax employee contributions (Correct answer)
- Employee deferrals and employer matching contributions only
- All plan account balances including investment gains
Correct answer: Employee deferrals, employer contributions, and after-tax employee contributions
Annual additions include all employee elective deferrals, employer contributions, and after-tax employee contributions made in a plan year.
Question 7: A participant in a 401(k) plan at age 45 takes an early withdrawal of $20,000. Assuming no exception applies, what is the total tax impact?
- 10% penalty only
- Ordinary income tax only on $20,000
- Ordinary income tax on $20,000 plus a 10% early withdrawal penalty (Correct answer)
- 20% flat tax with no additional penalty
Correct answer: Ordinary income tax on $20,000 plus a 10% early withdrawal penalty
Early withdrawals from a 401(k) before age 59½ are subject to ordinary income tax plus a 10% early withdrawal penalty unless an exception applies.
CRPC Employer-Sponsored Retirement Plans 5
What is the required beginning date for required minimum distributions (RMDs) for most participants in employer-sponsored plans under SECURE 2.0?