CRPS Module 6 questions and answers
A traditional 401(k) plan that is not top heavy must provide for participants to become vested
in discretionary non-matching employer profit sharing contributions over a schedule that
does not exceed which of the following alternatives?
I. three-year cliff vesting
II. two- to five-year graded vesting
III. two- to six-year graded vesting
IV. immediate 100% vesting
(LO 6-2)
A) I and II only
B) I and III only
C) II and IV only
D) I, II, III, and IV - correct answer-Guessing B)
Answer: B)
A traditional 401(k) plan must provide that participants become vested in discretionary
employer profit sharing contributions over a schedule that does not exceed either three-year
cliff or two- to six-year graded vesting.
Although a two- to five-year graded or a three-year cliff vesting alternative would not
disqualify the 401(k) plan, employers are not mandated to use that combination as a vesting
schedule.
Although a two- to five-year graded vesting alternative could be used instead of a two- to
six-year graded vesting schedule, the schedule that is more favorable to the employee is not
required.
Although a vesting program that provides for immediate 100% vesting is not disallowed, the
guidelines for the qualified vesting of 401(k) programs are more lenient.
Which one of the following individuals is considered to be a highly compensated employee
for purposes of the actual deferral percentage test?
(LO 6-2)
A) a 4% or more owner only
B) a more-than-5% owner only
C) a more-than-10% owner only
D) an equal partner - correct answer-Guessing B)
Answer: B)
A more-than-5% owner is considered to be a highly compensated employee for purposes of
the actual deferral percentage test.
, A more-than-5% owner is considered to be a highly compensated employee for purposes of
the actual deferral percentage test. Partnership equality is not a determining factor.
Which one of the following IRS forms must be used to report prohibited transactions?
(LO 6-1)
A) IRS Form 5310-A
B) IRS Form 5500-EZ
C) IRS Form 5330
D) IRS Form 1099-R - correct answer-Guessing C)
Answer: C)
IRS Form 5330 must be used to report prohibited transactions.
Form 5310-A must be used to report a merger, consolidation, or transfer (including spinoff)
of plan assets to another plan.
Form 5500-EZ is the annual return that should be used by one-participant (owners and their
spouses only) qualified plans.
Form 1099-R is used to report distributions to plan participants, beneficiaries, and the IRS.
A qualified plan that imposes a two-year eligibility requirement and is not top-heavy must
provide that participants will become vested in employer contributions to the plan according
to which one of the following minimum statutory vesting schedules?
(LO 6-2)
A) 100% immediate vesting schedule
B) three-year cliff vesting schedule
C) five-year cliff vesting schedule
D) six-year cliff vesting schedule - correct answer-Guessing C)
Answer: A)
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
five-year cliff vesting schedule cannot be used in this situation.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
three-year cliff vesting schedule cannot be used in this situation.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
six-year cliff vesting schedule cannot be used in this situation.
There are occasions when a company will rehire a once-terminated employee who was a
plan participant. Unless a plan has a rule covering breaks in service, all of an employee's
A traditional 401(k) plan that is not top heavy must provide for participants to become vested
in discretionary non-matching employer profit sharing contributions over a schedule that
does not exceed which of the following alternatives?
I. three-year cliff vesting
II. two- to five-year graded vesting
III. two- to six-year graded vesting
IV. immediate 100% vesting
(LO 6-2)
A) I and II only
B) I and III only
C) II and IV only
D) I, II, III, and IV - correct answer-Guessing B)
Answer: B)
A traditional 401(k) plan must provide that participants become vested in discretionary
employer profit sharing contributions over a schedule that does not exceed either three-year
cliff or two- to six-year graded vesting.
Although a two- to five-year graded or a three-year cliff vesting alternative would not
disqualify the 401(k) plan, employers are not mandated to use that combination as a vesting
schedule.
Although a two- to five-year graded vesting alternative could be used instead of a two- to
six-year graded vesting schedule, the schedule that is more favorable to the employee is not
required.
Although a vesting program that provides for immediate 100% vesting is not disallowed, the
guidelines for the qualified vesting of 401(k) programs are more lenient.
Which one of the following individuals is considered to be a highly compensated employee
for purposes of the actual deferral percentage test?
(LO 6-2)
A) a 4% or more owner only
B) a more-than-5% owner only
C) a more-than-10% owner only
D) an equal partner - correct answer-Guessing B)
Answer: B)
A more-than-5% owner is considered to be a highly compensated employee for purposes of
the actual deferral percentage test.
, A more-than-5% owner is considered to be a highly compensated employee for purposes of
the actual deferral percentage test. Partnership equality is not a determining factor.
Which one of the following IRS forms must be used to report prohibited transactions?
(LO 6-1)
A) IRS Form 5310-A
B) IRS Form 5500-EZ
C) IRS Form 5330
D) IRS Form 1099-R - correct answer-Guessing C)
Answer: C)
IRS Form 5330 must be used to report prohibited transactions.
Form 5310-A must be used to report a merger, consolidation, or transfer (including spinoff)
of plan assets to another plan.
Form 5500-EZ is the annual return that should be used by one-participant (owners and their
spouses only) qualified plans.
Form 1099-R is used to report distributions to plan participants, beneficiaries, and the IRS.
A qualified plan that imposes a two-year eligibility requirement and is not top-heavy must
provide that participants will become vested in employer contributions to the plan according
to which one of the following minimum statutory vesting schedules?
(LO 6-2)
A) 100% immediate vesting schedule
B) three-year cliff vesting schedule
C) five-year cliff vesting schedule
D) six-year cliff vesting schedule - correct answer-Guessing C)
Answer: A)
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
five-year cliff vesting schedule cannot be used in this situation.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
three-year cliff vesting schedule cannot be used in this situation.
If a plan requires two years of service as a condition of participation, an employee must be
100% vested in his or her account balance upon becoming a plan participant. Hence, the
six-year cliff vesting schedule cannot be used in this situation.
There are occasions when a company will rehire a once-terminated employee who was a
plan participant. Unless a plan has a rule covering breaks in service, all of an employee's
