IRM Exam 2 TB Questions and
Answers48
Salary reduction elections must be made by employees during a _____ period prior to January 1
of the year for which the elections are made.
a. sixty-day.
b. three-month.
c. thirty-day.
d. one-year. - ANSWERS-a. sixty-day.
Ava Evergreen owns and operates a large greenhouse and floral shop called Every Bloomin'
Thing as a sole proprietorship. Ava employs 110 full-time workers besides herself. A SIMPLE IRA
plan would allow Ava to make contributions to IRAs for her employees.
a. true.
b. false. - ANSWERS-b. false.
Bob Jolly is seventy-three this year. He has been a key employee of Appleton Bookkeeping
Services since he joined the company fifty years ago. The owner of Appleton would love it if Bob
stayed on indefinitely. Bob is in excellent health and has developed a wide clientele that enjoys
his wit and charm as well as his broad experience and expertise. Bob says he'll retire at seventy-
five "while he still has some time to enjoy retirement." Appleton Bookkeeping established
SIMPLE IRAs for employees five years ago. Which of the following is (are) true for Bob?
a. Bob can make a deductible contribution to his own traditional IRA.
b. Appleton cannot make a matching contribution to Bob's SIMPLE IRA because he is over 72.
,c. Appleton can make a salary reduction contribution to Bob's SIMPLE IRA.
d. a and b.
e. a and c. - ANSWERS-c. Appleton can make a salary reduction contribution to Bob's SIMPLE
IRA.
Ima Sapp is the sole proprietor of Maple Sweet, a candy business that uses Maple syrup. Maple
Sweet is an unincorporated business. Based on this information, can Ima adopt a SIMPLE IRA?
a. yes.
b. no. - ANSWERS-a. yes.
June Tandy is covered under a SIMPLE IRA at Barker Jones Auction House where she is
employed. This year, no salary deductions or employer contributions were allocated to her
SIMPLE IRA. If June contributes to her personal IRA this year, her deduction limit will be based
on those applying to a person who is not an active participant in a qualified retirement plan.
a. true.
b. false. - ANSWERS-a. true.
A defined benefit plan can help an older controlling employee in a small business maximize tax-
deferred savings. - ANSWERS-True
The Internal Revenue Code sets a maximum limit on the projected annual benefit that a defined
benefit plan can provide. - ANSWERS-True
An employee cannot be covered under both a defined benefit and a defined contribution plan. -
ANSWERS-False
,Defined benefit plans that use the flat amount formula provide a retirement benefit that is a
percentage of the employee's average earnings. - ANSWERS-False
A unit credit formula is based on the employee's age. - ANSWERS-False
Which plan has benefit levels that are guaranteed by both the employer and the Pension
Benefit Guaranty Corporation (PBGC)?
a. money purchase plan.
b. target benefit plan.
c. cross tested plan.
d. defined benefit plan.
e. tax-deferred annuity. - ANSWERS-d. defined benefit plan.
An employer who wants to reward an employee's years of service and contribution to the
company (measured as salary) would use a defined benefit plan formula based on a
a. flat amount.
b. flat percentage based on years of service.
c. flat percentage based on final average pay.
d. flat percentage based on career average pay.
e. unit credit formula. - ANSWERS-e. unit credit formula.
Disadvantages of defined benefit plans include
a. employee bears investment risk.
b. higher installation and administrative costs as compared with a defined contribution plan.
, c. older employees will receive a lower retirement benefit than younger employees.
d. a and b.
e. a and c. - ANSWERS-b. higher installation and administrative costs as compared with a
defined contribution plan.
Advantages of defined benefit plans include all of the following, except
a. defined benefit plans are easy to design and easy to explain to employees.
b. employees obtain a tax-deferred retirement savings medium.
c. retirement benefits at adequate levels can be provided for all employees regardless of age.
d. benefit levels are guaranteed both by the employer and, for some plans, by the PBGC.
e.for an older highly compensated employee - ANSWERS-a. defined benefit plans are easy to
design and easy to explain to employees.
A flat amount formula provides a distribution based on
a. an average of each employee's earnings over a number of years.
b. a percentage of each employee's average earnings.
c. a stated dollar amount for each employee.
d. an average of each employee's earnings over the employee's career with the employer. -
ANSWERS-c. a stated dollar amount for each employee.
Shannon McDougal will retire December 31 of this year. Shannon has worked for Shamrock
Construction for thirty years. During his last five years, he earned $40,000, $47,000, $44,000,
$46,000, and $48,000. Shamrock's retirement plan uses a unit credit formula that awards
employees 1.5 percent for each year of service using a financial average of the last three years.
Shannon's annual benefit will be
a. $19,500.
Answers48
Salary reduction elections must be made by employees during a _____ period prior to January 1
of the year for which the elections are made.
a. sixty-day.
b. three-month.
c. thirty-day.
d. one-year. - ANSWERS-a. sixty-day.
Ava Evergreen owns and operates a large greenhouse and floral shop called Every Bloomin'
Thing as a sole proprietorship. Ava employs 110 full-time workers besides herself. A SIMPLE IRA
plan would allow Ava to make contributions to IRAs for her employees.
a. true.
b. false. - ANSWERS-b. false.
Bob Jolly is seventy-three this year. He has been a key employee of Appleton Bookkeeping
Services since he joined the company fifty years ago. The owner of Appleton would love it if Bob
stayed on indefinitely. Bob is in excellent health and has developed a wide clientele that enjoys
his wit and charm as well as his broad experience and expertise. Bob says he'll retire at seventy-
five "while he still has some time to enjoy retirement." Appleton Bookkeeping established
SIMPLE IRAs for employees five years ago. Which of the following is (are) true for Bob?
a. Bob can make a deductible contribution to his own traditional IRA.
b. Appleton cannot make a matching contribution to Bob's SIMPLE IRA because he is over 72.
,c. Appleton can make a salary reduction contribution to Bob's SIMPLE IRA.
d. a and b.
e. a and c. - ANSWERS-c. Appleton can make a salary reduction contribution to Bob's SIMPLE
IRA.
Ima Sapp is the sole proprietor of Maple Sweet, a candy business that uses Maple syrup. Maple
Sweet is an unincorporated business. Based on this information, can Ima adopt a SIMPLE IRA?
a. yes.
b. no. - ANSWERS-a. yes.
June Tandy is covered under a SIMPLE IRA at Barker Jones Auction House where she is
employed. This year, no salary deductions or employer contributions were allocated to her
SIMPLE IRA. If June contributes to her personal IRA this year, her deduction limit will be based
on those applying to a person who is not an active participant in a qualified retirement plan.
a. true.
b. false. - ANSWERS-a. true.
A defined benefit plan can help an older controlling employee in a small business maximize tax-
deferred savings. - ANSWERS-True
The Internal Revenue Code sets a maximum limit on the projected annual benefit that a defined
benefit plan can provide. - ANSWERS-True
An employee cannot be covered under both a defined benefit and a defined contribution plan. -
ANSWERS-False
,Defined benefit plans that use the flat amount formula provide a retirement benefit that is a
percentage of the employee's average earnings. - ANSWERS-False
A unit credit formula is based on the employee's age. - ANSWERS-False
Which plan has benefit levels that are guaranteed by both the employer and the Pension
Benefit Guaranty Corporation (PBGC)?
a. money purchase plan.
b. target benefit plan.
c. cross tested plan.
d. defined benefit plan.
e. tax-deferred annuity. - ANSWERS-d. defined benefit plan.
An employer who wants to reward an employee's years of service and contribution to the
company (measured as salary) would use a defined benefit plan formula based on a
a. flat amount.
b. flat percentage based on years of service.
c. flat percentage based on final average pay.
d. flat percentage based on career average pay.
e. unit credit formula. - ANSWERS-e. unit credit formula.
Disadvantages of defined benefit plans include
a. employee bears investment risk.
b. higher installation and administrative costs as compared with a defined contribution plan.
, c. older employees will receive a lower retirement benefit than younger employees.
d. a and b.
e. a and c. - ANSWERS-b. higher installation and administrative costs as compared with a
defined contribution plan.
Advantages of defined benefit plans include all of the following, except
a. defined benefit plans are easy to design and easy to explain to employees.
b. employees obtain a tax-deferred retirement savings medium.
c. retirement benefits at adequate levels can be provided for all employees regardless of age.
d. benefit levels are guaranteed both by the employer and, for some plans, by the PBGC.
e.for an older highly compensated employee - ANSWERS-a. defined benefit plans are easy to
design and easy to explain to employees.
A flat amount formula provides a distribution based on
a. an average of each employee's earnings over a number of years.
b. a percentage of each employee's average earnings.
c. a stated dollar amount for each employee.
d. an average of each employee's earnings over the employee's career with the employer. -
ANSWERS-c. a stated dollar amount for each employee.
Shannon McDougal will retire December 31 of this year. Shannon has worked for Shamrock
Construction for thirty years. During his last five years, he earned $40,000, $47,000, $44,000,
$46,000, and $48,000. Shamrock's retirement plan uses a unit credit formula that awards
employees 1.5 percent for each year of service using a financial average of the last three years.
Shannon's annual benefit will be
a. $19,500.
