FP515 Retirement Savings and Income Planning Test Questions with Correct Answers Graded A+
Juan has worked for the ABC Company for 23 years. The defined benefit plan pays 2% of an employee's
average of his or her high five highest years of income. Juan's average is $60,000. How much will he
receive each month if he retires this year?
A) $3,000/month
B) $1,200/month
C) $2,300/month
D) $800/month - Answers $2300/month
Juan will receive $2,300 per month. $60,000 × 0.02 × 23 ÷ 12 = $2,300/month
Which of these statements regarding Social Security plan integration is false?
I. Because there is a disparity in the Social Security system, all retirement plans are allowed to integrate
with Social Security.
II. Only the excess method can be used by a defined benefit pension plan.
III. Under the offset method of integration, a fixed or formula amount reduces the plan formula.
IV. The maximum increase in benefits for earnings above covered compensation level is 5.7% for a
defined benefit pension plan.
A) II and III
B) II and IV
C) I and III
D) I, II, and IV - Answers I, II and IV
Statement I is incorrect because not all retirement plans are allowed to integrate with Social Security.
For example, ESOPs and SARSEPs are not permitted to use integration. Statement II is incorrect because
the defined benefit pension plan can use either the excess or offset method in integrating with Social
, Security. Only the excess method can be used with defined contribution plans. Statement IV is incorrect
because the permitted disparity limit for a defined benefit pension plan is 26.25% above the covered
compensation level (0.75% per year for up to 35 years).
Which of the following would NOT be a permitted disparity for a defined benefit plan that uses Social
Security integration?
A) An excess benefit percentage of 60%, if the base percentage is 30%
B) An excess benefit percentage of 20%, if the base percentage is 15%
C) An excess benefit percentage of 10% if the base percentage is 5%
D) An excess benefit percentage of 40%, if the base percentage is 20% - Answers A) An excess benefit
percentage of 60%, if the base percentage is 30%
Base percentage + permitted disparity = excess benefit percentage. The permitted disparity is the base
percentage, up to a maximum of 26.25% (0.75% per year for up to 35 years).
Which of the following does NOT meet the definition of active participation in a retirement plan for the
purposes of determining the deductibility of IRA contributions?
A) Matt makes contributions to his employer's qualified plan.
B) An employee is eligible to defer salary to his employer's Section 401(k) plan.
C) Betty has employee forfeitures reallocated to her account by her employer but makes no elective
deferrals in the same plan year.
D) Kerry has benefits accrued for him under his employer's defined benefit pension plan. - Answers B)
An employee is eligible to defer salary to his employer's Section 401(k) plan.
For the Section 401(k) retirement plan, an employee is considered covered as long as he or she is eligible
to defer part of his compensation; he or she does not have to actually make contributions. Note,
however, that active participation for purposes of determining deductibility of IRA contributions differs
from being covered under a qualified plan for nondiscrimination testing. Specifically, an employee must
be contributing to the plan, having employer contributions to the plan, forfeitures reallocated on his or
her behalf, or accruing a defined benefit before he or she is considered an active participant in a
Juan has worked for the ABC Company for 23 years. The defined benefit plan pays 2% of an employee's
average of his or her high five highest years of income. Juan's average is $60,000. How much will he
receive each month if he retires this year?
A) $3,000/month
B) $1,200/month
C) $2,300/month
D) $800/month - Answers $2300/month
Juan will receive $2,300 per month. $60,000 × 0.02 × 23 ÷ 12 = $2,300/month
Which of these statements regarding Social Security plan integration is false?
I. Because there is a disparity in the Social Security system, all retirement plans are allowed to integrate
with Social Security.
II. Only the excess method can be used by a defined benefit pension plan.
III. Under the offset method of integration, a fixed or formula amount reduces the plan formula.
IV. The maximum increase in benefits for earnings above covered compensation level is 5.7% for a
defined benefit pension plan.
A) II and III
B) II and IV
C) I and III
D) I, II, and IV - Answers I, II and IV
Statement I is incorrect because not all retirement plans are allowed to integrate with Social Security.
For example, ESOPs and SARSEPs are not permitted to use integration. Statement II is incorrect because
the defined benefit pension plan can use either the excess or offset method in integrating with Social
, Security. Only the excess method can be used with defined contribution plans. Statement IV is incorrect
because the permitted disparity limit for a defined benefit pension plan is 26.25% above the covered
compensation level (0.75% per year for up to 35 years).
Which of the following would NOT be a permitted disparity for a defined benefit plan that uses Social
Security integration?
A) An excess benefit percentage of 60%, if the base percentage is 30%
B) An excess benefit percentage of 20%, if the base percentage is 15%
C) An excess benefit percentage of 10% if the base percentage is 5%
D) An excess benefit percentage of 40%, if the base percentage is 20% - Answers A) An excess benefit
percentage of 60%, if the base percentage is 30%
Base percentage + permitted disparity = excess benefit percentage. The permitted disparity is the base
percentage, up to a maximum of 26.25% (0.75% per year for up to 35 years).
Which of the following does NOT meet the definition of active participation in a retirement plan for the
purposes of determining the deductibility of IRA contributions?
A) Matt makes contributions to his employer's qualified plan.
B) An employee is eligible to defer salary to his employer's Section 401(k) plan.
C) Betty has employee forfeitures reallocated to her account by her employer but makes no elective
deferrals in the same plan year.
D) Kerry has benefits accrued for him under his employer's defined benefit pension plan. - Answers B)
An employee is eligible to defer salary to his employer's Section 401(k) plan.
For the Section 401(k) retirement plan, an employee is considered covered as long as he or she is eligible
to defer part of his compensation; he or she does not have to actually make contributions. Note,
however, that active participation for purposes of determining deductibility of IRA contributions differs
from being covered under a qualified plan for nondiscrimination testing. Specifically, an employee must
be contributing to the plan, having employer contributions to the plan, forfeitures reallocated on his or
her behalf, or accruing a defined benefit before he or she is considered an active participant in a
