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DC3 - 2014 Practice Exam

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Quiz on DC3 - 2014 Practice Exam, created by Justin Guy (just on 23/10/2015.
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Quiz by Justin Guy (just, updated more than 1 year ago
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Resource summary

Question 1

Question
All of the following statements regarding ESOPs are TRUE, EXCEPT:
Answer
  • A. Permitted disparity may not be used when allocating ESOP contributions.
  • B. An ESOP may not include a 401(k) elective deferral feature.
  • C. In some cases, the tax deductible contribution to a leveraged ESOP may exceed the 25% deductible limit.
  • D. ESOPs are subject to the top-heavy rules.
  • E. The plan sponsor of a leveraged ESOP may be able to deduct the amount of loan interest.

Question 2

Question
All of the following statements regarding compensation are TRUE, EXCEPT:
Answer
  • A. For IRC §404 deduction purposes, elective deferrals are included in eligible compensation.
  • B. Top-heavy minimum contributions are based on compensation from entry date for mid-year entrants.
  • C. The plan’s definition of compensation must be limited to $200,000 (as indexed).
  • D. Compensation for allocation purposes may be limited to a specific dollar amount as defined in the plan document.
  • E. Compensation for self-employed individuals is defined as earned income.

Question 3

Question
Based on the following information, determine the self-employed individual’s earned income under the profit sharing plan: Schedule C income $120,000 Self-employment tax $6,000 Contributions for employees $12,000 Contribution for self-employed individual $5,000
Answer
  • A. $97,000
  • B. $100,000
  • C. $102,000
  • D. $105,000
  • E. $120,000

Question 4

Question
Based on the following information for the HCEs, determine the average accrual rate for the NHCE group that is necessary to enable the plan to pass the average benefit test: Participant Accrual Rate Participant Accrual Rate A 10.50% B 8.75% C 6.50% D 4.25%
Answer
  • A. 5.25%
  • B. 7.50%
  • C. 10.50%
  • D. 21.00%
  • E. 30.00%

Question 5

Question
All of the following statements regarding the direct rollover notice are TRUE, EXCEPT:
Answer
  • A. The direct rollover notice need not be provided for total distributions under $200.
  • B. Failure to provide the direct rollover notice is subject to $100 penalty per violation, $50,000 maximum per calendar year.
  • C. The direct rollover notice must be provided no less than 30 days before the distribution.
  • D. The direct rollover notice need not be provided for rollovers made to 403(b) or 457 plans.
  • E. The direct rollover notice must include an explanation of the tax consequences of not electing to make the rollover.

Question 6

Question
All of the following statements regarding ASGs are TRUE, EXCEPT:
Answer
  • A. An ASG may exist even if there is no common ownership between the entities involved.
  • B. Only professional service corporations are affected by the ASG rules.
  • C. If an ASG exists, all employees of the affected employers are treated as a single employer for purposes of applying the coverage rules under IRC §410(b).
  • D. When requested, the IRS will issue a determination letter regarding ASG status.
  • E. An ASG consists of organizations identified as an FSO, an A-Org, a B-Org or a management group.

Question 7

Question
All of the following persons or entities are generally not considered fiduciaries, EXCEPT:
Answer
  • A. Investment manager hired by the plan sponsor
  • B. Custodian of plan assets without discretionary investment authority
  • C. Plan’s accountant
  • D. Recordkeeper hired by the sponsor to maintain participant account balances
  • E. Insurance company providing the investment contract for plan assets

Question 8

Question
All of the following statements regarding fiduciary liability are TRUE, EXCEPT:
Answer
  • A. A fiduciary may avoid liability for a breach committed by another fiduciary by resigning as a plan fiduciary.
  • B. A fiduciary may be required to pay the plan any profits earned by the fiduciary through the use of plan assets involved in a breach.
  • C. A fiduciary that knowingly conceals or does not make a reasonable effort to remedy a breach may be liable for the breach.
  • D. A fiduciary is personally liable for any breach that he or she directly commits.
  • E. A fiduciary is generally not liable for any loss resulting from a participant’s investment direction of the assets allocated to his or her account under an ERISA §404(c) plan.

Question 9

Question
All of the following statements regarding prohibited transactions are TRUE, EXCEPT:
Answer
  • A. The IRS imposes an initial 15% excise tax on the amount involved.
  • B. The prohibited transaction excise tax is not deductible.
  • C. The undoing of a prohibited transaction will avoid restoration of losses to the plan.
  • D. Payment of the excise tax does not relieve the fiduciary of the obligation to correct the transaction.
  • E. Generally, the IRS will not automatically disqualify the plan.

Question 10

Question
All of the following statements regarding the nondiscrimination requirements under IRC §401(a)(4) are TRUE, EXCEPT:
Answer
  • A. The benefits, rights and features provided under the plan must be made available to employees in a nondiscriminatory manner.
  • B. Nondiscrimination testing is applied on the basis of the plan year.
  • C. A defined contribution plan may use a testing method under IRC §401(a)(4) to show that the amount of elective deferrals is nondiscriminatory.
  • D. IRC §414(s) compensation is used for nondiscrimination testing.
  • E. Certain plans may be permissively aggregated to satisfy testing under IRC §401(a)(4).

Question 11

Question
All of the following statements regarding life insurance in defined contribution plans are TRUE, EXCEPT:
Answer
  • A. A plan may allow for the purchase of whole life insurance if the premiums are less than 50% of the cumulative contributions and forfeitures allocated to the individual participant’s account.
  • B. Universal life insurance is considered term insurance for purposes of the percentage limitations of the incidental benefit test.
  • C. In a profit sharing plan, the incidental life insurance limit does not apply to premiums that are paid with contributions that have accumulated in the trust for at least two years.
  • D. A participant’s death benefit in a defined contribution plan will be the greater of the face value of the life insurance policy or the participant’s vested account balance.
  • E. Insurance policies held in a participant’s account may not continue to be held in the plan after the participant retires.

Question 12

Question
All of the following statements regarding fiduciary responsibility are TRUE, EXCEPT:
Answer
  • A. A fiduciary must satisfy pre-established rates of return in the investment of plan assets.
  • B. A fiduciary must act solely in the interest of participants and beneficiaries.
  • C. A fiduciary must comply with the provisions of the plan document.
  • D. A fiduciary must discharge his duties in a prudent manner.

Question 13

Question
All of the following are considered prohibited transactions, EXCEPT:
Answer
  • A. The contribution of property owned by the sponsoring employer to a defined benefit plan
  • B. The contribution of employer securities to a profit sharing plan as the annual employer contribution
  • C. A fully secured $10,000 loan from a plan to the sponsoring employer, bearing interest at the current rate of prime plus 2%
  • D. The late deposit of elective deferrals to a plan
  • E. The lease, to the sponsoring employer, of a printing press owned by the plan

Question 14

Question
Based on the following information, determine the participant's benefit percentage used in the average benefit test portion of the general test: • Benefit percentage derived from the money purchase contribution is 10%. • Benefit percentage derived from forfeitures allocated in the money purchase plan is 1.5%. • Benefit percentage derived from a profit sharing contribution in the employer's separate profit sharing plan is 3%. • Benefit percentage derived from an elective deferral in the employer's separate 401(k) plan is 8%. • Benefit percentage derived from a matching contribution in the employer's separate 401(k) plan is 2%.
Answer
  • A. 10.0%
  • B. 11.5%
  • C. 14.5%
  • D. 16.5%
  • E. 24.5%

Question 15

Question
Based on the following information, determine the number of shares in the ESOP that are currently available for diversification: • Participant A’s account contains 15,000 shares of employer stock valued at $20 per share. • Participant A is age 58 with 15 years of participation. • In the first year of diversification, Participant A diversified 1,000 shares valued at $24 per share. • There have not been any other distributions from the account.
Answer
  • A. 0
  • B. 3,000
  • C. 3,750
  • D. 4,000
  • E. 7,500

Question 16

Question
All of the following are advantages of adopting an ESOP, EXCEPT:
Answer
  • A. Motivates employees
  • B. Shares company growth more directly with employees
  • C. Common plan type in the marketplace that is simple to administer
  • D. Used for corporate financing (e.g., a leveraged ESOP)
  • E. Creates a market for the company shares

Question 17

Question
All of the following statements regarding cross-tested plans are TRUE, EXCEPT:
Answer
  • A. Age and compensation are factors used in testing for nondiscrimination.
  • B. Plan year compensation may be used when testing allocations under the current year method.
  • C. The testing age is usually the plan’s normal retirement age.
  • D. Average annual compensation must be used when testing allocations under the accrued-to-date method.
  • E. Each rate group includes only one HCE.

Question 18

Question
All of the following statements regarding controlled group attribution rules under IRC §1563 when applied to adult children (i.e., age 21 or older) are TRUE, EXCEPT:
Answer
  • A. A parent is attributed ownership of a business held by the child only if the parent owns more than 50% of that business.
  • B. An adult child is attributed ownership of a business held by a parent only if the adult child owns more than 50% of that business.
  • C. In determining ownership interest in a business, both direct ownership and stock attribution apply.
  • D. A parent is attributed ownership of all businesses of the adult child if attribution requirements are satisfied with regard to at least one of the businesses.
  • E. Stock attribution rules are different for determining controlled groups than they are for determining ASGs.

Question 19

Question
All of the following statements regarding multiple employer plans are TRUE, EXCEPT:
Answer
  • A. Leasing organizations often maintain multiple employer plans to better coordinate benefits with recipient employers.
  • B. Participating employers who maintain a multiple employer plan may have employees in common.
  • C. A multiple employer plan typically includes participating employers whose benefits are subject to a collectively bargained agreement.
  • D. A professional employer organization may need to adopt a multiple employer plan to avoid violating the exclusive benefit rule.
  • E. Participating employers who maintain a multiple employer plan may have common ownership.

Question 20

Question
Based on the following information, determine the EBAR based on cross-testing contributions as benefits: Annual compensation $100,000 Allocation $20,000 Future value of allocation $67,995 Annual annuity purchase rate 7.95
Answer
  • A. 2.52%
  • B. 3.70%
  • C. 5.40%
  • D. 8.55%
  • E. 20.00%

Question 21

Question
Based on the following information, determine Employee A’s compensation for purposes of IRC §415: • The employer sponsors a 401(k) plan. • The plan excludes bonuses from the definition of compensation for allocation purposes. • Employee A’s income including bonuses and qualified moving expense reimbursements is $80,000. • Employee A’s bonus for the year is $8,000. • Employee A does not make elective deferrals for the year. • Employee A has qualified moving expense reimbursements of $15,000.
Answer
  • A. $57,000
  • B. $65,000
  • C. $72,000
  • D. $80,000
  • E. $95,000

Question 22

Question
All of the following statements regarding the average benefit test are TRUE, EXCEPT:
Answer
  • A. Both parts of the test, the nondiscriminatory classification test and the average benefit percentage test, must be satisfied.
  • B. The plan will satisfy the nondiscriminatory classification part of the average benefit test if the classification of employees who benefit satisfies a facts and circumstances test.
  • C. Each plan of the employer is tested separately for average benefit testing.
  • D. The nondiscriminatory classification test is satisfied if the coverage ratio is at least 50%.
  • E. The average benefit percentage test is satisfied if the average benefit percentage is at least 70%.

Question 23

Question
Which of the following statements regarding benefits, rights and features is/are TRUE? I. An optional form of benefit under the plan must be currently available to a nondiscriminatory group of participants. II. The ability to self-direct a participant’s account balance must be effectively available to a nondiscriminatory group of participants. III. Effective availability is determined on a facts and circumstances basis.
Answer
  • A. I only
  • B. II only
  • C. I and III only
  • D. II and III only
  • E. I, II and III

Question 24

Question
All of the following statements regarding distributions of employer securities are TRUE, EXCEPT:
Answer
  • A. Distributions consisting solely of employer securities are not subject to mandatory tax withholding rules.
  • B. Generally, gain on the sale of employer securities is taxed as long-term capital gain.
  • C. ESOPs are the only plan type that allows distributions in the form of employer securities.
  • D. Cost basis is the amount included as taxable income when the participant received the distribution of employer securities.
  • E. Net unrealized appreciation excluded from gross income is not part of the cost basis on the sale of the securities.

Question 25

Question
Based on the following information, determine which of the following corporations is/are members of a controlled group: Individual X Corporation Y Corporation Z Corporation A 45% 50% 80% B 50% 50% 10% C 5% 0% 10%
Answer
  • A. None
  • B. Corporations X and Y only
  • C. Corporations X and Z only
  • D. Corporations Y and Z only
  • E. Corporations X, Y and Z

Question 26

Question
Which of the following forms of compensation is/are included under IRC §415(c)(3)? I. Qualified moving expense reimbursements II. Elective deferral contributions under a 401(k) plan III. Workers compensation
Answer
  • A. I only
  • B. II only
  • C. I and III only
  • D. II and III only
  • E. I, II and III

Question 27

Question
For a profit sharing plan to be exempt from the QJSA requirements, all of the following conditions must be satisfied, EXCEPT:
Answer
  • A. Only cash distributions may be allowed from the plan, except for rollovers to another plan maintained by the same employer
  • B. A decedent’s benefits must be payable in full to the surviving spouse unless the spouse has consented to another beneficiary
  • C. There are no life annuity options in the plan; or if there are, the participant does not elect into them
  • D. Account balances do not include direct transfers from a plan that was subject to the QJSA requirements
  • E. Account balances may not be part of a floor-offset arrangement with a defined benefit plan maintained by the employer

Question 28

Question
Which of the following is/are corrections available when a plan does not satisfy nondiscrimination requirements under IRC§401(a)(4)? I. Adopt a plan amendment to correct the violation within 9½ months following the end of the plan year II. Provide selected NHCEs with additional benefits III. Cut back HCE benefits
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 29

Question
Which of the following statements regarding prohibited transactions is/are TRUE? I. An excise tax is imposed on the disqualified person who engages in a prohibited transaction. II. A prohibited transaction is corrected by undoing the transaction to the extent possible and placing the plan in the financial position it was in prior to the transaction. III. An additional tax of 100% is imposed if the prohibited transaction is not corrected within a certain time period after notification by the IRS.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 30

Question
Which of the following statements regarding ASPPA’s Code of Professional Conduct is/are TRUE? I. An ASPPA member may perform professional services only when qualified to do so based on education, training and experience. II. At a client’s written direction, an ASPPA member may perform professional services that mislead, violate or evade the law. III. An ASPPA member must disclose to a client all sources of compensation received for services provided to that client by the ASPPA member.
Answer
  • A. II only
  • B. III only
  • C. I and II only
  • D. I and III only
  • E. I, II and III

Question 31

Question
Which of the following statements regarding compensation under IRC §414(s) is/are TRUE? I. The definition of compensation will not be considered discriminatory merely because it includes elective deferrals to an IRC §403(b) plan. II. The definition of compensation will not be considered discriminatory merely because it excludes compensation which was earned prior to the date an employee becomes a participant in the plan. III. The definition of compensation will not be considered discriminatory merely because it excludes compensation in excess of a specific dollar amount as defined in the plan document.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 32

Question
Which of the following is/are conditions that must be satisfied in order for an individual to be treated as a leased employee under IRC §414(n)? I. Services performed must be under the primary control or direction of the recipient employer. II. Services must be performed under an agreement between the recipient employer and the leasing organization. III. Services must be performed for at least six months on a substantially fulltime basis.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 33

Question
All of the following are considered covered service providers for purposes of ERISA §408(b)(2), EXCEPT:
Answer
  • A. An investment advisor receiving revenue sharing from the plan assets totaling $3,000 per quarter
  • B. A third party administrator billing the employer directly an annual administration fee of $1,500
  • C. An actuary providing one-time consulting on a project for $500 paid by the plan
  • D. A recordkeeper collecting an asset charge of 10 basis points annually, equating to $10,000 paid from the plan
  • E. An investment advisor billing the employer directly $4,000 for a vendor search for the plan provider

Question 34

Question
Which of the following statements regarding the compensation used to determine the deduction limit under IRC §404 is/are TRUE? I. Compensation includes elective deferrals. II. Compensation for all of the employer’s employees is included in the deductible limit calculation. III. Total compensation paid or accrued during an employer’s taxable year is considered.
Answer
  • A. II only
  • B. III only
  • C. I and II only
  • D. I and III only
  • E. I, II and III

Question 35

Question
Which of the following statements regarding LLC’s is/are TRUE? I. An LLC is limited to a maximum of 100 members. II. An LLC with two or more members may elect to be taxed as a corporation or a partnership. III. An LLC with only one member may elect to be taxed as a corporation or a sole proprietorship.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 36

Question
All of the following statements regarding otherwise excludable employees are TRUE, EXCEPT:
Answer
  • A. The employer may only chose to run coverage testing by disaggregating otherwise excludable employees if it is included in the plan document.
  • B. On a year-by-year basis, a plan may elect to perform coverage testing by disaggregating otherwise excludable employees.
  • C. On a year-by-year basis, a plan may elect to perform ADP testing by disaggregating otherwise excludable employees.
  • D. The nonstatutory employees are included in the testing group covering otherwise excludable employees.
  • E. The otherwise excludable employee disaggregation applies separately to each disaggregated portion of the plan.

Question 37

Question
All of the following statements regarding fiduciary responsibilities are TRUE, EXCEPT:
Answer
  • A. The documents under which the plan operates will establish the terms of the plan.
  • B. Every fiduciary and every person who handles plan funds must be bonded.
  • C. If there is money owed to the plan, the responsible fiduciaries must take reasonable, prudent steps to secure collection of such amounts.
  • D. The collection of contributions and calculation of benefits are fiduciary responsibilities.
  • E. A fiduciary must carry out his or her duties solely in the interest of plan participants and beneficiaries.

Question 38

Question
All of the following statements regarding cross-tested defined contribution plans are TRUE, EXCEPT:
Answer
  • A. Participants’ allocations are converted into a single life annuity payable at the plan’s testing age.
  • B. EBAR calculations are not permitted to recognize allocations to the participant in prior years.
  • C. The allocation that is converted does not normally include earnings that are attributed to the allocation for the current plan year.
  • D. The interest rate used to convert the allocation into a benefit must be within a range of 7.5% to 8.5%.
  • E. If a participant’s allocation is limited by IRC §415, the reduced allocation is used to convert the allocation for that participant.

Question 39

Question
Which of the following statements regarding permissive aggregation and coverage testing is/are TRUE? I. Plans must have the same plan year to be permissively aggregated. II. When plans are permissively aggregated for coverage testing, they must also be permissively aggregated for nondiscrimination purposes. III. Permissive aggregation may be useful if one of an employer’s plans fails the ratio percentage test and the employer does not want to use the average benefit test for that plan.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 40

Question
Under the ASPPA Code of Professional Conduct, which of the following requirements is/are necessary in order for an ASPPA member to perform professional services involving an actual or potential conflict of interest? I. There must be full disclosure to the client of any actual or potential conflicts of interest. II. There must be full disclosure to the client of a significant conflict that may impair the member’s ability to act fairly in that situation. III. The member’s client must expressly agree to the performance of the services by the member.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 41

Question
Based on the following information, determine Participant A’s current includible compensation for purposes of IRC §415: • Participant A’s base salary is $110,000. • Participant A’s bonus for the year is $10,000. • Participant A defers $17,000 of income into the company’s 401(k) plan. • Participant A reduces compensation by $5,000 by contributing to the employer’s IRC §125 cafeteria plan on a pre-tax basis. • Participant A’s qualified moving expense reimbursements for the year are $4,000.
Answer
  • A. $ 98,000
  • B. $103,000
  • C. $110,000
  • D. $120,000
  • E. $124,000

Question 42

Question
Which of the following statements regarding leased employees under IRC §414(n) is/are TRUE? I. Professionals who regularly make use of their own judgment and discretion on matters of importance in the performance of their services generally satisfy the leased employee test under IRC §414(n). II. The leasing organization, not the recipient, must be the common law employer of the individual. III. The recipient must be paying a fee for the services of the individual.
Answer
  • A. I only
  • B. III only
  • C. I and II only
  • D. II and III only
  • E. I, II and III

Question 43

Question
All of the following statements regarding ownership attribution under IRC §318 as applicable to ASGs are TRUE, EXCEPT:
Answer
  • A. A grandchild is attributed a grandparent’s ownership in a business.
  • B. A parent is attributed a child’s ownership in a business.
  • C. A child is attributed a parent’s ownership in a business.
  • D. A grandparent is attributed a grandchild’s ownership in a business.
  • E. A wife is attributed her husband’s ownership in a business.

Question 44

Question
All of the following statements regarding permissive aggregation are TRUE, EXCEPT:
Answer
  • A. If two plans are permissively aggregated to satisfy the ratio percentage test for coverage, they must also be aggregated for IRC §401(a)(4) testing.
  • B. Plans may not be permissively aggregated for coverage testing, unless they have the same plan year.
  • C. If two 401(k) plans are being permissively aggregated to pass coverage, then the ADP test must also be performed on an aggregate basis.
  • D. When plans are permissively aggregated, the benefiting group is determined by including any employee who benefits under any plan being aggregated.
  • E. If an employer sponsors a profit sharing plan and a SEP, they may be permissively aggregated to satisfy coverage testing.

Question 45

Question
All of the following participants must receive a gateway contribution if the plan is crosstested, EXCEPT:
Answer
  • A. Non-key employees eligible for a minimum top-heavy contribution
  • B. Participants who are allocated a QNEC to satisfy nondiscrimination testing in a 401(k) plan
  • C. Participants eligible for a safe harbor nonelective contribution in a safe harbor 401(k) plan
  • D. Participants eligible for a discretionary profit sharing contribution
  • E. Participants eligible for a safe harbor matching contribution in a safe harbor 401(k) plan

Question 46

Question
All of the following statements regarding QSLOBs and coverage testing under IRC §410(b) are TRUE, EXCEPT:
Answer
  • A. A plan that benefits employees of more than one QSLOB, may satisfy the reasonable classification test by being tested as an aggregated entity.
  • B. Plans that are tested on a QSLOB basis may use permissive aggregation with plans maintained by other QSLOBs.
  • C. Under QSLOB testing, each QSLOB separately determines its coverage testing group.
  • D. Generally, when determining the average benefit percentage under the average benefit test, only plans maintained by the QSLOB are taken into account.
  • E. When performing the coverage tests for a plan maintained by a QSLOB, all employees not included in that QSLOB are excludable employees.

Question 47

Question
All of the following statements regarding ASGs are TRUE, EXCEPT:
Answer
  • A. SEPs and SIMPLE 401(k) plans are exempt from ASG rules.
  • B. All ASG members are treated as a single employer when identifying HCEs.
  • C. All ASG members are treated as a single employer when determining IRC §415 limits.
  • D. Service with all ASG members is considered for vesting purposes.
  • E. Service with all ASG members is considered for eligibility purposes.

Question 48

Question
Based on the following information, determine which of the following corporations is/are members of a controlled group: • None of the individuals are related. Employee Corporation 1 Corporation 2 Corporation 3 W 60% 40% 80% X 20% 15% 20% Y 20% 5% 0% Z 0% 40% 0%
Answer
  • A. None
  • B. Corporation 1 and Corporation 2 only
  • C. Corporation 1 and Corporation 3 only
  • D. Corporation 2 and Corporation 3 only
  • E. Corporation 1, Corporation 2 and Corporation 3

Question 49

Question
All of the following are deducted from a self-employed individual's earned income in order to determine compensation for plan purposes, EXCEPT:
Answer
  • A. One-half of the self-employment tax
  • B. Profit sharing contributions for common-law employees
  • C. Matching contributions for common-law employees
  • D. Elective deferrals for the self-employed individual
  • E. Profit sharing contribution for the self-employed individual

Question 50

Question
Which of the following statements regarding leased employees is/are TRUE? I. There does not have to be common ownership between the leasing organization and the recipient employer for the leased employees to be treated as the employees of the recipient for qualification purposes. II. If an employer is unsure whether certain individuals should be treated as leased employees, it may apply to the IRS for a determination on this issue. III. A contribution made by the recipient employer to its own plan for leased employees is deductible under IRC §404.
Answer
  • A. I only
  • B. II only
  • C. I and III only
  • D. II and III only
  • E. I, II and III

Question 51

Question
All of the following statements regarding the average benefit test are TRUE, EXCEPT:
Answer
  • A. Fail-safe language in the plan document may preclude the use of the average benefit test.
  • B. All plans included in the test must use the same method of calculating employee benefit percentages: allocation rates or benefit rates.
  • C. All employees in the coverage testing group (not just the employees who are benefitting under the plan being tested) are taken into account to compute these employee benefit percentages.
  • D. The employee benefit percentages may not be adjusted by imputing permitted disparity.
  • E. When calculating the employees’ benefit percentage, all contributions allocated (or benefits accrued) for the plan year are included.

Question 52

Question
All of the following statements regarding coverage testing in the average benefit percentage test are TRUE, EXCEPT:
Answer
  • A. An employee who has irrevocably waived participation in the plan is still included when computing the average benefit percentage test.
  • B. The average benefit percentage test must reflect the employee benefit percentages of all employees in the coverage testing group, regardless of whether they are benefitting in any plan maintained by the employer.
  • C. Participants who terminate during the year, have completed 500 or fewer hours during the plan year or fail to benefit under the plan may be disaggregated under the otherwise excludable testing option.
  • D. The coverage testing group for the average benefit percentage test is determined by applying the excludable employee rules as if the plans in the average benefit percentage testing group constitute a single plan.
  • E. The coverage testing group for average benefit percentage testing of two or more plans with different eligibility requirements must be tested using the least restrictive eligibility requirements.

Question 53

Question
All of the following are ethical violations under the ASPPA Code of Professional Conduct, EXCEPT:
Answer
  • A. Disclosure of a participant’s salary to another plan participant
  • B. Use of the QPA designation by a candidate who is awaiting confirmation that they have been awarded the designation
  • C. A third-party administrator hiding a significant conflict of interest between the plan and the interest of another party
  • D. A third-party administrator advertising that an enrolled actuary is on their staff, but utilizing the services of an outside actuary
  • E. Disclosure to the plan sponsor of fees paid to the third-party administrator by a broker that invests the plan assets

Question 54

Question
Based on the following information, determine the number of rate groups for purposes of the nondiscrimination test under IRC §401(a)(4): Benefit % HCE 1 4.25 HCE 2 3.00 HCE 3 18.50 HCE 4 3.00 HCE 5 8.75
Answer
  • A. 1
  • B. 2
  • C. 3
  • D. 4
  • E. 5

Question 55

Question
Which of the following statements regarding correcting violations of nondiscrimination rules is/are TRUE? I. A corrective amendment may reduce benefits to otherwise eligible HCEs. II. A corrective amendment may add otherwise ineligible NHCEs to the plan. III. A corrective amendment may provide additional benefits to selected NHCEs in the plan.
Answer
  • A. I only
  • B. II only
  • C. I and III only
  • D. II and III only
  • E. I, II and III
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