DC-2
.
- 1.
A 401(k) plan may require two years of service for eligibility in the profit sharing component of the plan.
- A.
True
- B.
False
Correct Answer
A. True -
- 2.
A post-ERISA money purchase plan may allow for elective contributions.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Elective contributions are permitted in profit sharing, stock bonus and pre-ERISA money purchase plans.Rate this question:
-
- 3.
Elective contributions may be eligible for hardship withdrawal.
- A.
True
- B.
False
Correct Answer
A. True -
- 4.
Excess deferrals must be distributed from the plan within 2 1/2 months after the plan year-end.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Excess deferrals occur when an individual exceeds the IRC 402(g) dollar limit. This limit is determined each calendar year (tax year of the individual) and is not affected by the plan year. Excess deferrals should be refunded no later than April 15 following the year of excess.Rate this question:
-
- 5.
Catch-up contributions are included in the participant's annual addition limit under IRC 415.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Catch-up contributions are not included in determining whether a participant has exceeded the annual addition limit under IRC 415Rate this question:
-
- 6.
An employer may elect to make matching contributions on catch-up contributions.
- A.
True
- B.
False
Correct Answer
A. True -
- 7.
Designated Roth contributions are elective contributions that are made on an after-tax basis.
- A.
True
- B.
False
Correct Answer
A. True -
- 8.
Elective contributions are available for distribution after a participant completes two years of service.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Elective contributions are only available for distribution under certain circumstances, including severance from employment, death, disability, attainment of age 59 1/2, financial hardship, plan termination, eligible automatic contribution arrangement, certain military service and qualified hurricane distributions.Rate this question:
-
- 9.
Elective deferrals may be re-characterized as catch-up contributions due to a failed ADP test.
- A.
True
- B.
False
Correct Answer
A. True -
- 10.
A participant must be age 50 to make designated Roth contributions.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Designated Roth contributions are elective contributions made on an after tax basis and may be made by any eligible participant regardless of the participant's age.Rate this question:
-
- 11.
An EACA requires an annual notice to participants
- A.
True
- B.
False
Correct Answer
A. True -
- 12.
A 401(k) plan must comply with all of the following requirements in order to obtain favorable tax treatment, EXCEPT:
- A.
Participants must be given the option to elect to receive cash compensation or have the amounts contributed to the 401(k) plan as elective contributions.
- B.
Elective contributions may not be distributed based on the passage of a fixed number of years of plan participation.
- C.
Plan benefits, other than employer matching contributions, may not be dependent on the participant making elective contributions.
- D.
Elective contributions and earning thereon must be 100% vested at all times.
- E.
Participants must be given the right to direct the investments of their elective contributions.
Correct Answer
E. Participants must be given the right to direct the investments of their elective contributions.Explanation
Although it is very common to allow participants to direct the investment of their elective contributions, it is not a requirement of a qualified plan.Rate this question:
-
- 13.
All of the following statements describe characteristics of 401(k) plans, EXCEPT:
- A.
A stock bonus plan may include a 401(k) feature
- B.
Tax-exempt organizations may establish a 401(k) plan
- C.
A 401(k) plan may require up to two years of service for the elective contribution component of the plan
- D.
Elective contributions are subject to Social Security taxes (FICA and FUTA)
- E.
Self-employed individuals may participate in a 401(k) plan
Correct Answer
C. A 401(k) plan may require up to two years of service for the elective contribution component of the planExplanation
The 401(k) component may require no more than one year of service for eligibility purposes.Rate this question:
-
- 14.
All of the following statements regarding types of contributions in 401(k) plans are TRUE, EXCEPT:
- A.
Nonelective contributions are made by the employer and are not related to a participant's elective contributions
- B.
Matching contributions are based on the amount of a participant's elective contributions
- C.
QMACs are 100% vested
- D.
A 401(k) plan must provide for either matching or nonelective contributions
- E.
QNECs are 100% vested
Correct Answer
D. A 401(k) plan must provide for either matching or nonelective contributionsExplanation
It is common for a 401(k) plan to include a matching or nonelective feature, but it is not a requirement.Rate this question:
-
- 15.
Based on the following information, determine the participant's excess deferral for 2014:
- The plan is a calendar year 401(k) plan
- The employer made no contributions to participants for 2014
- The participant did not make elective contributions into any other plan during the year
- The participant is age 30 and is an NHCE
- The IRC 402(g) dollar limit is $17,500 and the catch-up limit is $5,500
- The participant made pre-tax elective contributions of $18,000
- The participant made designated Roth contributions of $2,000
- A.
$0
- B.
$1,000
- C.
$1,500
- D.
$2,500
- E.
$4,500
Correct Answer
D. $2,500Explanation
The participant made total elective contributions of $20,000 ($18,000 + $2,000). The participant is not catch-up eligible (only age 30) so the IRC 402(g) dollar limit of $17,500 applies to this individual. The participant had excess deferrals of $2,500 ($20,000-$17,500)Rate this question:
- 16.
Based on the following information, determine when the participant is catch-up eligible:
- The 401(k) plan is a calendar year plan
- The participants date of birth is March 15, 1964
- A.
12/31/2013
- B.
01/01/2014
- C.
03/15/2015
- D.
07/01/2014
- E.
03/15/2015
Correct Answer
B. 01/01/2014Explanation
The participant attains age 50 on 03/15/2014. The participant is catch-up eligible in the plan year (12/01/201-12/31/2014) during which the participant attains age 50Rate this question:
- 17.
All of the following statements regarding excess deferrals are TRUE, EXCEPT:
- A.
Excess deferrals that are not timely distributed may cause plan disqualification
- B.
Earnings distributed on excess deferrals are taxable in the year of distribution
- C.
Excess deferrals are determined with respect to the calendar year
- D.
Excess deferrals that are timely distributed are taxable in the year of deferral
- E.
Excess deferrals that are not timely distributed are subject to a 10% excise tax
Correct Answer
E. Excess deferrals that are not timely distributed are subject to a 10% excise taxExplanation
There is no excise tax associated with excess deferrals and their timely distributionRate this question:
-
- 18.
Which of the following statements regarding 401(k) plan distributions is/are TRUE?
- Elective deferrals may be distributed after attainment of age 59 1/2 even if the participant is still employed
- QNECs and QMACs may be distributed on account of hardship
- A 401(k) plan must permit hardship withdrawals of elective contributions
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1,2, and 3
Correct Answer
A. 1 onlyExplanation
QNECs and QMACs and safe harbor 401(k) contributions may not be distributed on account of hardship. A 401(k) plan may permit hardship withdrawals of elective contributions, but it is not required to do so.Rate this question:
- 19.
Which of the following statements regarding designated Roth contributions is/are TRUE?
- Designated Roth contributions are elective deferrals made on an after tax basis
- Designated Roth contributions are tested for nondiscrimination purposes in the ACP test
- The IRC 402(g) limit on elective deferrals applies to designated Roth contributions
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1, 2, and 3
Correct Answer
C. 1 and 3 onlyExplanation
Designated Roth contributions are tested for nondiscrimination purposes in the ADP testRate this question:
- 20.
Which of the following statements regarding EACAs and QACAs is/are TRUE?I. A QACA is an EACA that satisfies 401(k) safe harbor plan requirementsII. During the first 120 days of participation in an EACA, employees may withdraw elective contributions made as a result of automatic enrollmentIII. An EACA with no nonelective contributions may qualify for an exemption from top-heavy rules
- A.
I only
- B.
II only
- C.
I and III only
- D.
II and III only
- E.
I, II, and III
Correct Answer
A. I onlyExplanation
During the first 90 days of participation in an EACA, employees may withdraw elective contributions made as a result of automatic enrollment. A QACA with no nonelective contributions may qualify for an exemption from top-heavy rules. This exemption is not available to EACAsRate this question:
-
- 21.
Which of the following statements regarding 401(k) plan distributions is/are TRUE?I. Elective contributions may be distributed after attainment of age 50 1/2 even if the participant is still employedII. Safe harbor 401(k) matching and nonelective contributions may not be distributed on account of hardshipIII. All employer matching contributions in a 401(k) plan are subject to the same distribution restrictions as the elective contributions
- A.
I only
- B.
II only
- C.
I and III only
- D.
II and III only
- E.
I, II, and III
Correct Answer
B. II onlyExplanation
Elective contributions may be distributed after attainment of age 59 1/2 even if the participant is still employed, but not at age 50 1/2. The distribution restrictions that apply to elective contributions do not apply to nonsafe harbor matching contirbutionsRate this question:
-
- 22.
A plan is always permitted to switch from the current year testing method to the prior year testing method.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A plan can always switch from prior to current year testing, but is subject to restrictions when switching from current year to prior year.Rate this question:
-
- 23.
For coverage testing purposes, the 401(k) part of the plan is tested separately from the 401(m) part of the plan.
- A.
True
- B.
False
Correct Answer
A. True -
- 24.
The 401(m) portion of the plan must satisfy nondiscrimination using the ACP test.
- A.
True
- B.
False
Correct Answer
A. True -
- 25.
Elective deferrals may satisfy nondiscrimination using the general test.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The ADP test is the only means available to show that elective deferrals are nondiscriminatory.Rate this question:
-
- 26.
Safe harbor 401(k) plans are exempt from IRC 410(b) coverage requirements.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
There is no special exception from coverage testing merely because a 401(k) plan is a safe harbor plan.Rate this question:
-
- 27.
After-tax employee contributions are included in the ACP test.
- A.
True
- B.
False
Correct Answer
A. True -
- 28.
Designated Roth contributions are included in the ACP test.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Designated Roth contributions are elective deferrals and are included in the ADP test.Rate this question:
-
- 29.
A plan with no HCEs automatically passes the ADP test.
- A.
True
- B.
False
Correct Answer
A. True -
- 30.
Any participants who terminated during the plan year may be excluded from the 401(k) coverage test.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
All participants who were eligible to elect to make elective contributions during the year, whether or not later terminated, are included in the 401(k) coverage test.Rate this question:
-
- 31.
The current year's HCE ADP data is used when using the prior year testing method.
- A.
True
- B.
False
Correct Answer
A. True -
- 32.
Based on the following information, determine the HCE ADP:
- None of the HCEs is catch-up eligible
- There are no other contributions in the plan
- There is no plan-imposed limit on elective deferrals
- A.
0.00%
- B.
3.00%
- C.
4.00%
- D.
5.00%
- E.
8.00%
Correct Answer
C. 4.00%Explanation
The ADR for HCE A is 5.00% ($10,000/$200,000). The ADR for HCE B is 3.00% ($2,400/$80,000). The ADP is the average of the ADRs of 4.00% [(5.00% + 3.00%) / 2]Rate this question:
- 33.
All of the following statement regarding nondiscrimination testing in a 401(k) plan are TRUE, EXCEPT:
- A.
The ADP test can be satisfied by the 1.25 test
- B.
The ACP test can be satisfied by the 2 percent spread test
- C.
The testing data for the NHCE group may be current year data
- D.
The testing data for the NHCE group may be prior year data
- E.
The testing data for the HCE group may be prior year data
Correct Answer
E. The testing data for the HCE group may be prior year dataExplanation
The HCE data used for nondiscrimination testing is always current year data, even if the prior year testing method is usedRate this question:
-
- 34.
All of the following are excluded in determining the ADP, EXCEPT:
- A.
Excess deferrals for an HCE
- B.
Excess deferrals for an NHCE
- C.
Excess annual additions for an HCE
- D.
Excess annual additions for an NHCE
- E.
Catch-up contributions for an HCE
Correct Answer
A. Excess deferrals for an HCEExplanation
Excess deferrals for an HCE are included in determining the HCE's ADRRate this question:
-
- 35.
Which of the following is/are participants that must be included in the ADP test?
- An active participant who made no elective deferrals due to a hardship withdrawal restriction
- An active participant who made no elective deferrals due to IRC 415 limitations
- A terminated participant who worked 400 hours of service and made no elective deferrals
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1, 2, and 3
Correct Answer
E. 1, 2, and 3 - 36.
All of the following types of contributions may be included in the ACP test, EXCEPT:
- A.
After-tax employee contributions
- B.
Make-up employer matching contributions due to USERRA
- C.
QNECs
- D.
QMACs
- E.
Forfeitures allocated as an employer matching contribution
Correct Answer
B. Make-up employer matching contributions due to USERRAExplanation
Make-up contributions due to military service covered by USERRA are not included in the ADP or ACP tests.Rate this question:
-
- 37.
All of the following statements regarding IRC410(b) coverage testing in a 401(k) plan are TRUE, EXCEPT:
- A.
QMACs that are shifted to the ADP test for nondiscrimination purposes are tested in the 401(m) component of the plan for coverage purposes
- B.
QNECs are tested in either the 401(k) or the 401(m) component of the plan for coverage purposes, depending on whether they are included in the ADP or ACP test for nondiscrimination purposes
- C.
Designated Roth contributions are tested in the 401(k) component of the plan for coverage purposes, even if they are shifted to the ACP test for nondiscrimination purposes
- D.
After-tax employee contributions are tested in the 401(m) component of the plan for coverage purposes
- E.
Elective deferrals are tested in the 401(k) component of the plan for coverage purposes, even if they are shifted to the ACP test for nondiscrimination purposes.
Correct Answer
B. QNECs are tested in either the 401(k) or the 401(m) component of the plan for coverage purposes, depending on whether they are included in the ADP or ACP test for nondiscrimination purposesExplanation
It does not matter if the QNECs are included in the ADP or ACP test. They are tested as nonelective contributions in the 401(a) portion of the plan for coverage puposesRate this question:
-
- 38.
Based on the following information, determine the maximum elective deferral that HCE Y could make that will satisfy the ADP test:
- The NHCE ADP is 3.00%
- The IRC 401(a)(17) compensation limit in 2014 is $260,000
- None of the HCEs is catch-up eligible
- There is no plan-imposed limit on elective deferrals
- A.
$0
- B.
$6,000
- C.
$10,000
- D.
$12,000
- E.
$18,000
Correct Answer
D. $12,000Explanation
With an NHCE ADP of 3.00%, the maximum HCE ADP is 5.00%. Max [The 1.25 times test = 3.75% and the 2 percent spread test = 5.00% (MIN[3%*2=6%, 3%+2%=5%])].
HCE X's ADR = $15,600/$260,000 = 6% (due to limit)
HCE Z's ADR = $4,500/$150,000 = 3%
5% = (Y% + 6% + 3%)/3 --> Yed = 6% x $200,000 = $12,000Rate this question:
- 39.
Which of the following statement regarding IRC 410(b) coverage testing in a 401(k) plan is/are TRUE?
- When testing the 401(k) component, any eligible employee under the 401(k) plan is considered to be benefiting
- When testing the 401(k) component, a participant is treated as not eligible if the right to defer is suspended due to a hardship withdrawal
- An employee who is eligible to receive matching contributions, but chose not to make elective deferrals is considered to be benefiting when testing the 401(m) component
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1, 2, and 3
Correct Answer
C. 1 and 3 onlyExplanation
If an employee is suspended from deferring under the 401(k) arrangement, the employee is treated as an eligible employee if the employee otherwise would be eligible to defer had the suspension not been in effect.Rate this question:
- 40.
Which of the following statements regarding nondiscrimination testing in a 401(k) plan is/are TRUE?
- QNECs are tested as nonelective contributions under the 401(a) component for coverage purposes
- QMACs are tested as nonelective contributions under the 401(a) component for coverage purposes
- The general test can be used to show that the 401(m) arrangement satisfies nondiscrimination requirements.
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1, 2, and 3
Correct Answer
A. 1 onlyExplanation
QMACs are tested under the 401(m) component for coverage purposes. The ACP test is the only means available to show that a 401(m) arrangement is nondiscriminatory.Rate this question:
- 41.
Which of the following statements regarding the ADP and ACP testing methods is/are TRUE?
- After switching from prior year to current year testing, a plan must generally use current year testing for at least three plan years before it can switch back to prior year testing
- A plan may use the prior year testing method for the ACP test while using the current year testing method for the ADP test
- When the plan is using QMACs in the ADP test or shifting elective deferrals into the ACP, the ADP test and the ACP test must use the same testing method
- A.
1 only
- B.
2 only
- C.
1 and 3 only
- D.
2 and 3 only
- E.
1, 2, and 3
Correct Answer
D. 2 and 3 onlyExplanation
After switching from prior year to current year testing, a plan must generally use current year testing for at least five plan years before it can switch back to prior year testing.Rate this question:
- 42.
QNECs may be allocated to NHCEs to enable a 401(k) plan to pass the ADP test.
- A.
True
- B.
False
Correct Answer
A. True -
- 43.
QMACs may use the six-year graded vesting schedule applicable to matching contributions.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
QMACs must be 100% vested and subject to the 401(k) withdrawal restrictions.Rate this question:
-
- 44.
One way to correct a failed ACP test is to recharacterize excess aggregate contributions as after-tax employee contributions.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
One way to correct a failed ADP test is to recharacterize excess contributions as after-tax employee contributions. Excess aggregate contributions may not be recharacterized as after-tax employee contributions.Rate this question:
-
- 45.
Excess contributions that are distributed are not subject to the 10% penalty on early distributions.
- A.
True
- B.
False
Correct Answer
A. True -
- 46.
Spousal consent is required for a corrective distribution in excess of $5,000
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Spousal consent is not required for a corrective distribution due to an ADP or ACP failure, even if the amount is over $5,000 and even if the plan is otherwise subject to QJSA requirements.Rate this question:
-
- 47.
Excess aggregate contributions are eligible rollover distributions
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Corrective distributions made due to a failed ADP or ACP test are not eligible for rollover.Rate this question:
-
- 48.
The excise tax on corrective distributions made more than 2 1/2 months after the end of the plan year is paid by the participant
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The 10% excise tax due on corrective distributions made after the deadline is payable by the employer.Rate this question:
-
- 49.
If a corrective distribution consists partly of designated Roth contributions and partly of pre-tax elective contributions, two Forms 1099-R would be required.
- A.
True
- B.
False
Correct Answer
A. True -
- 50.
A plan must permit after-tax employee contributions in order to use the recharacterization method of correcting a failed ADP test.
- A.
True
- B.
False
Correct Answer
A. True -
Quiz Review Timeline +
Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.
-
Current Version
-
Nov 20, 2016Quiz Edited by
ProProfs Editorial Team -
Jul 20, 2016Quiz Created by
Jcollier
- Accounting Quizzes
- Advertising Quizzes
- Agriculture Quizzes
- Automotive Quizzes
- Business Accounting Quizzes
- Business Analyst Quizzes
- Business Development Quizzes
- Business Environment Quizzes
- Business Etiquette Quizzes
- Business Finance Quizzes
- Business Math Quizzes
- Business Organization Quizzes
- Business Plan Quizzes
- Business Process Quizzes
- Business Study Quizzes
- Business Technology Quizzes
- CEO Quizzes
- Collaboration Quizzes
- Construction Quizzes
- Consumer Quizzes
- CSR Quizzes
- Customer Quizzes
- Customer Service Quizzes
- Development Quizzes
- Ecommerce Quizzes
- Employment Quizzes
- Entrepreneurship Quizzes
- Finance Quizzes
- Hospitality Quizzes
- Human Resources Quizzes
- Industry Quizzes
- International Business Quizzes
- Introduction To Business Quizzes
- Investment Quizzes
- Logistics Quizzes
- Manufacturing Quizzes
- Marketing Quizzes
- Material Quizzes
- Media Quizzes
- Office Quizzes
- Organization Quizzes
- Principles Of Business Quizzes
- Printing Quizzes
- Product Quizzes
- Publishing Quizzes
- Real Estate Quizzes
- Retail Quizzes
- Sales Quizzes
- SAP Business One Quizzes
- Small Business Quizzes
- Source Quizzes
- Supply Quizzes
- Survey Quizzes
- Telecommunication Quizzes
- Trade Quizzes
- Training Quizzes
- Transportation Quizzes
- Warehouse Quizzes
- Welding Quizzes
Back to top