Unit 4 - Corporate Sponsored Retirement Plans || Top Grade
Assured.
Which of the following circumstances must be met for a fiduciary to trade options in a trust
account?
Special circumstances determined by the broker/dealer.
The trust agreement states the trustee has the power to trade options.
The trust's investment objectives are determined to be compatible with options trading.
Only covered options may be traded by a fiduciary.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III. correct answers Answer: D
A fiduciary account may only trade options if expressly authorized to do so and if suitable for the
beneficial owner of the account.
Which of the following is (are) TRUE regarding qualified pension plans?
They must not discriminate.
They must have a vesting schedule.
They must be in writing.
Every month the employer must update the current status of all accounts.
A) I, II and III.
B) I and III.
C) III only.
D) I, II, III and IV. correct answers Answer: A
,An employer must update the status of all employees at least annually, not monthly.
What term is used to describe which employees will be covered by a pension plan?
A) Funding.
B) Party in interest.
C) Eligibility.
D) Vesting. correct answers Answer: C
Pension plans must have a uniform nondiscriminatory eligibility program. All employees must
be covered when they become eligible, which means reaching 1 year of service working full-
time and age 21.
In a qualified plan, if the employer makes all of the contributions, the employee's cost basis is:
A) zero.
B) the value of the contributions.
C) the increase in value only.
D) one-half of the contributions made. correct answers Answer: A
Because the employee has not made any contributions, the cost basis is zero. In any qualified
plan, if all of the contributions are in pretax dollars, the cost basis is zero no matter who
contributes the money.
Each of the following is a defined contribution plan EXCEPT:
A) a profit-sharing plan (qualified).
B) a money-purchase pension plan.
,C) a stock option plan.
D) a 401(k) plan. correct answers Answer: C
Money-purchase pension plans, 401(k) plans, and qualified profit-sharing plans are all examples
of defined contribution plans.
On retirement, if your customer who is a corporate executive will receive retirement income
equaling a percentage of the average of his last 5 years of compensation, this is which type of
plan?
A) Keogh
B) Defined contribution
C) TSA
D) Defined benefit correct answers Answer: D
In a defined benefit plan, the retiree receives a specified amount with the sponsor bearing the
investment risk. Keogh plans are not corporate plans. In a defined contribution plan, the
employee contributes a defined amount each period, bears the investment risk, and does not
receive a defined amount upon retirement. TSAs (tax-sheltered annuity plans, a common name
for 403(b) plans) are defined contribution plans, not defined benefit plans.
All of the following statements regarding qualified corporate retirement plans are true EXCEPT:
A) all qualified retirement plans are either defined contribution or defined benefit plans.
B) defined contribution plans have the same contribution limits as Keogh plans.
C) with defined benefit plans, the employee bears the investment risk.
D) all corporate pension and profit-sharing plans must be established under a trust agreement.
correct answers Answer: C
, With defined benefit plans, the employer (not the employee) bears the investment risk. The
employer must fund the defined benefits, regardless of the investment performance of funds set
aside for this purpose. The retiree receives a defined benefit regardless of investment
performance. All corporate pension and profit-sharing plans must be established under a trust
agreement. All qualified retirement plans are either defined contribution or defined benefit plans.
Defined contribution plans have the same contribution limits as Keogh plans.
An employer-sponsored retirement plan that pays a specific benefit to participants at their normal
retirement age is a:
A) defined contribution plan.
B) defined benefit plan.
C) supplemental employee retirement plan.
D) section 401(k) plan. correct answers Answer: B
A traditional defined benefit plan promises to pay a specific benefit to a participant at his normal
retirement age as specified by the plan document.
An employer has a qualified retirement plan that promises to pay employees a specific
percentage of their average salary if they complete 20 years of service. This type of pension plan
is a:
A) defined benefit pension plan.
B) defined contribution pension plan.
C) profit-sharing plan.
D) 401(k) plan. correct answers Answer: A
A defined benefit pension plan is one that promises to pay employees a certain specified benefit
at retirement. The modern trend is toward a defined contribution plan, in which the employer
promises to make certain contributions to the plan each year, but does not commit to paying
Assured.
Which of the following circumstances must be met for a fiduciary to trade options in a trust
account?
Special circumstances determined by the broker/dealer.
The trust agreement states the trustee has the power to trade options.
The trust's investment objectives are determined to be compatible with options trading.
Only covered options may be traded by a fiduciary.
A) I and III.
B) I and IV.
C) II and IV.
D) II and III. correct answers Answer: D
A fiduciary account may only trade options if expressly authorized to do so and if suitable for the
beneficial owner of the account.
Which of the following is (are) TRUE regarding qualified pension plans?
They must not discriminate.
They must have a vesting schedule.
They must be in writing.
Every month the employer must update the current status of all accounts.
A) I, II and III.
B) I and III.
C) III only.
D) I, II, III and IV. correct answers Answer: A
,An employer must update the status of all employees at least annually, not monthly.
What term is used to describe which employees will be covered by a pension plan?
A) Funding.
B) Party in interest.
C) Eligibility.
D) Vesting. correct answers Answer: C
Pension plans must have a uniform nondiscriminatory eligibility program. All employees must
be covered when they become eligible, which means reaching 1 year of service working full-
time and age 21.
In a qualified plan, if the employer makes all of the contributions, the employee's cost basis is:
A) zero.
B) the value of the contributions.
C) the increase in value only.
D) one-half of the contributions made. correct answers Answer: A
Because the employee has not made any contributions, the cost basis is zero. In any qualified
plan, if all of the contributions are in pretax dollars, the cost basis is zero no matter who
contributes the money.
Each of the following is a defined contribution plan EXCEPT:
A) a profit-sharing plan (qualified).
B) a money-purchase pension plan.
,C) a stock option plan.
D) a 401(k) plan. correct answers Answer: C
Money-purchase pension plans, 401(k) plans, and qualified profit-sharing plans are all examples
of defined contribution plans.
On retirement, if your customer who is a corporate executive will receive retirement income
equaling a percentage of the average of his last 5 years of compensation, this is which type of
plan?
A) Keogh
B) Defined contribution
C) TSA
D) Defined benefit correct answers Answer: D
In a defined benefit plan, the retiree receives a specified amount with the sponsor bearing the
investment risk. Keogh plans are not corporate plans. In a defined contribution plan, the
employee contributes a defined amount each period, bears the investment risk, and does not
receive a defined amount upon retirement. TSAs (tax-sheltered annuity plans, a common name
for 403(b) plans) are defined contribution plans, not defined benefit plans.
All of the following statements regarding qualified corporate retirement plans are true EXCEPT:
A) all qualified retirement plans are either defined contribution or defined benefit plans.
B) defined contribution plans have the same contribution limits as Keogh plans.
C) with defined benefit plans, the employee bears the investment risk.
D) all corporate pension and profit-sharing plans must be established under a trust agreement.
correct answers Answer: C
, With defined benefit plans, the employer (not the employee) bears the investment risk. The
employer must fund the defined benefits, regardless of the investment performance of funds set
aside for this purpose. The retiree receives a defined benefit regardless of investment
performance. All corporate pension and profit-sharing plans must be established under a trust
agreement. All qualified retirement plans are either defined contribution or defined benefit plans.
Defined contribution plans have the same contribution limits as Keogh plans.
An employer-sponsored retirement plan that pays a specific benefit to participants at their normal
retirement age is a:
A) defined contribution plan.
B) defined benefit plan.
C) supplemental employee retirement plan.
D) section 401(k) plan. correct answers Answer: B
A traditional defined benefit plan promises to pay a specific benefit to a participant at his normal
retirement age as specified by the plan document.
An employer has a qualified retirement plan that promises to pay employees a specific
percentage of their average salary if they complete 20 years of service. This type of pension plan
is a:
A) defined benefit pension plan.
B) defined contribution pension plan.
C) profit-sharing plan.
D) 401(k) plan. correct answers Answer: A
A defined benefit pension plan is one that promises to pay employees a certain specified benefit
at retirement. The modern trend is toward a defined contribution plan, in which the employer
promises to make certain contributions to the plan each year, but does not commit to paying
