Question

Which of the following statements is true of a nonqualified plan?

(A) The employer receives a tax deduction only when the employee reports income.

(B) The contributions are tax deductible to the employer and to the employee at the time the employer makes them.

(C) The contributions are deductible to the employer at the time the employer makes them and taxable to the employee.

(D) The contributions are deductible to the employer at the time the employer makes them and the employee is not taxed until benefits are distributed.

Which of the following advantages is (are) obtained from installation of a defined-benefit retirement plan? ​

I. The plan will increase employees’ take-home pay. ​

II​. The plan will help the employer to attract needed employees. ​

III​.The plan will minimize the employer’s investment risk. ​

IV​. The plan will allow the employer to deduct contributions in the year made.

(A) II only​​ (B) II and IV only​ (C) I and III only (D) I, II, III and IV

Which of the following statements concerning a qualified plan is (are) correct?

(A) Qualified plans do not provide protection for plan benefits from bankruptcy of the business.

(B) Qualified plans provide a tax shelter for the investment income earned by the plan assets.

(C) Qualified plans are not limited on the amount of benefits when the plan includes immediate vesting.

(D) Qualified plans are not subject to ERISA rules when the plan includes immediate vesting.

Which of the following statements best describes the advantages of a qualified money-purchase pension plan?

(A) It is designed to adequately protect against inflation.

(B) Older employees can be more readily provided with adequate retirement benefits.

(C) Tax sheltering is enhanced because an annuity can be purchased for each employee.

(D) Costs are predictable, and the design is simple and understandable.

Which of the following statements concerning a cash balance plan is correct?

​​(A) ​The employer assumes the investment risk.

(B)  ​There are individual account balances in a cash balance plan.

(C)  ​A cash balance plan is a profit sharing plan.

(D)  ​The cash balance plan is generally less expensive plan to install than a money purchase plan.

Which of the following statements concerning the nondiscrimination requirements of profit-sharing and stock bonus 401(k) plans is correct? ​​​

(A) The actual deferral percentage of the highly-paid employees may not exceed 100% of that of the nonhighly-paid.

(B) The actual deferral percentage of the highly-paid employees may not be more than 200% of that of the nonhighly-paid, and the difference between the two percentages may not exceed 2%.

(C) The use of a safe-harbor provision is prohibited.

(D) In addition to the ADP test, the plans must satisfy both the ratio percentage test and the average benefit test.

Which of the following statements concerning funding policy and objectives is (are) correct?​

​I​. Defined-benefit plans are required to adopt a funding policy, but it is optional for defined-contribution plans.

​II​. In defined-contribution plans, the objective may be to offer investment vehicles so that participants can make up their own portfolios.

(A)​I only​​(C)​Both I and II

(B)​II only​​(D)​Neither I nor II

​Which of the following statements concerning selection of investments for qualified plans is (are) correct?

​I​. Tax-exempt bonds are generally not appropriate investments for qualified plans.

​II​. Money market instruments are appropriate for long-term capital growth.

(A) ​I only​​ (C) ​Both I and II

(B) ​II only​​ (D) ​Neither I nor II

All the following statements concerning mutual fund investments for qualified plans are correct, EXCEPT:

(A)​The availability of participant-directed investments relieves the sponsor of all fiduciary liability.

(B)​Management and acquisition fees are important factors.

(C)​Debt portfolios may be used in addition to equity-based funds.

(D)​Both small and large plans can participate in mutual fund investments.

Answer 1

1. WHICH OF THE FOLLOWING STATEMENT IS TRUE OF A NON-QUALIFIED PLAN ?

ANS: CORRECT OPTION :( C )

The contributions are deductible to the employer at the time the employer makes them and taxable to employee.

- Unlike the qualified plans, under non-qualified plans, corporations may only obtain deduction from the plan at the time when the employee is subject to tax on the benefits due to actual or constructive receipt.

incorrect option : ( a ) employer get tax deduction only when the employee reports income.

- the tax deduction is possible only when the employee is subject to tax benefits.

incorrect option : ( b ) the contributions are tax deductible to the employee and employer at the time when the employer makes them.

- in a non-qualified deferred compensation , the employee receives no present benefits. Employee is only an unsecured creditor. And the employer will get the deduction only when the employee is subject to tax benefits.

incorrect option : ( d ) the contributions are tax deductible to the employer at the time when the employer makes it , and the employee is not taxable until the benefits are distributed

- the employers can only dedduct the benefits as the employee includes the benefit in taxable income.