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Essentials Of Retirement Planning 2nd Edition Eric Robbins - Solutions
Describe relevant investment characteristics for an employersponsored plan.
Know what should be included in an IPS and how this information can help a fiduciary.
Identify the various funding instruments.
Understand the funding rules for defined contribution (DC) plans.
Describe a fully insured plan.
Interpret and assess the funded status of a DB plan.
Describe the funding requirements for a defined benefit (DB) plan.
What two pitfalls should an employer be wary of with respect to offering disability benefits within their retirement savings plan?
What is the minimum required top-heavy contribution if an employer has a top-heavy 401(k) plan that only contains employee salary deferrals, and at least one key employee makes a 5 percent salary deferral within the plan?
At the end of a given plan year, a company’s money purchase plan had the following participants.Which employees are key employees, and does this company’s money purchase plan have a top-heavy problem? Employee % ownership Salary ($) Account balance ($) Employee A 95 85,000 100,000 Employee B 3
Assess the accuracy of this statement: “Most large employers prefer to offer life insurance benefits through their retirement savings accounts.”
What is the difference in tax treatment between whether an insurance policy is owned inside or outside a retirement savings account?
The owner of a business wants to purchase a large amount of whole life insurance with their own profit-sharing plan account. Is there any want to satisfy the incidental benefit problem?
Other than instantly creating an estate, what are the top two reasons that an employer might offer a life insurance option within a qualified retirement plan?
A 55-year-old participant recently got married. While on honeymoon, there was a tragic accident and he was accidentally killed while parasailing in the Caribbean. His surviving spouse is surprised to learn that the now deceased spouse’s DB plan will not pay her any benefits under a QPSA
An employee receives a notice from his employer stating that because he is married, he is eligible for a QJSA. He is told that the QJSA requires that a payment to a surviving spouse must be at least 40 percent of the participant’s benefit. He also told that it is enough if he alone signs a form
Describe common disability provisions in employersponsored plans.
Describe why it may be beneficial to provide preretirement death benefits outside of an employer-sponsored retirement plan.
Understand the limitations imposed by the incidental death benefit rule.
Explain the common options for preretirement death planning.
In a DB plan, how can the employer legally limit the benefits for older, longer service employees without violating age discrimination laws?
Respond to an employer’s statement that he is “concerned about administrative hassles of implementing the required break-in-service rules.”
A 41-year-old employee has taken a plan loan for 50 percent of his vested balance ($20,000 loan) to buy a car. Three years into the loan repayment, he loses his job. He is single and ends up living off unemployment for over a year while looking for a new job. During this job search process, he
What is the maximum loan that can be taken by the following employees? Employee Employee A Vested account balance($) % of ownership 17,000 0 Employee B 160,000 0 Employee C 200,000 50
Is this vesting schedule permitted in a DC plan? Years of service 0-1 2 Percentage vested 0 3 4 10 30 100
Is this vesting schedule permitted in a DC plan? Years of service 0-1 2 Percentage vested 0 3 4 5 9 20 40 60 80 100
Is this vesting schedule permitted in a DB plan? Years of service 0-2 3 4 5 6 Percentage vested 0 25 50 75 28 100
Is this vesting schedule permitted in a DB plan? Years of service 0-2 3 5 6 7 Percentage vested 0 10 30 70 2288 90 100
A medium-sized employer is planning on offering a plan loan feature within the 401(k) plan. They have decided that 2.5 percent is a decent interest rate to offer to their employees. What advice would you have for this employer?
A friend works at a company with a 401(k). His vested balance is$75,000, and he is planning on taking a loan for the whole vested balance to buy a rental property. What advice would you have for your friend?
A friend of yours owns a small business, and he offers a SIMPLE plan to his employees. His restrictive cash management policy has created a short-term problem, leaving him short on cash for payroll. He is considering taking a short-term loan from his personal SIMPLE account to fix the problem. What
Identify the differences among normal, early, and deferred retirement age.
Explain the various vesting requirements.
Understand why a plan loan is usually not recommended.
Describe when a plan loan could be useful.
Understand the general features and rules of a plan loan.
A company comes to you for advice after learning that they have not passed the mandatory coverage testing in their 401(k) plan. Upon inspection of their plan, you learn that the employer offers matching contributions and that many of the executives also make voluntary after-tax contributions. What
A small business owner approaches you with an interest to integrate his SIMPLE plan with Social Security so that the company’s HCEs are realizing greater value. What comments should you make?
Does the inclusion of older NHCEs limit the ability of an ageweighted contribution formula to skew benefits in favor of HCEs?
How can cross testing be used to skew the employer’s contributions in favor of older employees?
If an employer contributes 6 percent of total compensation for each employee, then how much more could be contributed for employees who earn more than the integration level, which is set at 75 percent of the TWB?
An employer contributes 4.25 percent of the total compensation for each employee into an MPPP that is integrated with Social Security. They use the TWB as the integration level. A certain HCE who grosses $500,000 noticed that she had an excess contribution of$6,226.25 into her account. She was
An employer contacts you to provide advice about what to do with their employer-sponsored retirement plans. They have an MPPP and they also have a profit-sharing plan to allow for contribution flexibility. They want to give their HCEs an extra incentive to stay with the company, and so they plan to
A friend tells you that his employer offers an MPPP, which is integrated with Social Security. He tells you that he is planning on not participating in the integration portion of the plan because he does not want to sacrifice any money from his take-home pay as a contribution. What advice would you
A friend from your college days has just been told by his employer that economic conditions necessitate that they will be losing their access to an employer-sponsored retirement plan. Your friend tells you that he remembers reading somewhere that the employer cannot alter any projected benefits
Discuss the role of voluntary employee after-tax contributions and the rules that apply to them.
Understand how an employer can use integration with Social Security, cross testing, or age weighting to provide either highly compensated or older employees an additional benefit allocation.
Explain why the definition of compensation is so important.
Explain why accrued benefits are important in a defined benefit (DB) plan.
A company is in the habit of hiring long-term temp workers for its manufacturing plant. It only uses temp workers for noncore production jobs. Of the 400-member population of NHCEs, there are typically about 95 long-term temp workers with the remainder being full-time employees. The company’s
In the previous example, assume that Roger only owns 13 percent of company A, while his wife, who manages the sale team at company A, owns the other 10 percent. Does this new information change the potential issues with controlled group status?
In the previous example, Roger has transferred 10 percent of his ownership interest in company A to his 12-year-old daughter. Could he use this technique to avoid any potential issues with controlled group status?
Consider the scenario below where three individuals have differing levels of common ownership over two separate companies.Company A offers a retirement plan, while company B does not.From the perspective of a controlled group, is there any issue here? Shareholder Company A (%) Company B (%) Tim
You are the HR manager at a small company. A mid-tier manager who earns $150,000 annually requests a meeting to discuss his lack of access to the company’s 401(k) plan. He appreciates the other benefits and the stock option grants, but by the tone of his voice over the phone, you get the idea
Is it correct that a company can extend the normal eligibility rule of 21 years of age with one year of service to 21 years of age and two years of service if they offer full vesting within two years of inception of contributions?
A company has 20 retirement plan-eligible HCEs, and 16 of them participate. They also have 75 eligible NHCEs, and 37 of them participate. Does this company pass the ratio test?
A plastics company is trying to find a loophole for 410(b) coverage testing. They have separated their production department from their materials acquisition department. The idea is to only offer a plan to the materials acquisition department which mainly comprises skilled workers, while the
Why do you think that a company might choose to define its HCEs as the top 20 percent of wage earners?
You approach the CFO of a small company about adding a retirement plan for the employees. The CFO tells you that your timing is perfect. The company is actively considering adding an SEP plan.He further tells you that he has already put together an adoption agreement and has sent it to the U.S.
Understand the impact of a controlled group, an affiliated service group, and a leased employee on employer-sponsored retirement plans.
Identify opportunities created by the coverage requirements.
Understand the application of the 410(b) coverage test.
Explain why the adoption agreement is necessary.
A church-based nonprofit organization wants to install a retirement plan that could cover everyone who works at the organization. It has three full-time employees and 10 self-employed subcontractors.The organization is planning on allowing the workers to choose from a list of 15 mutual funds and is
A very small S corporation has four employees. The owner realizes that competing employers are sponsoring 401(k) plans. To compete with the other employers, the owner would like a similar plan, but is not willing to pay significant administrative expenses.
A company with very stable earnings and cash flow has had a modest money purchase pension plan for a long time. Participation in the plan precludes employees (87 employees) from participating in other plan types. The company wants to encourage its employees to save for retirement themselves. They
A small company with 75 employees already has a profit-sharing plan in place for its employees. It is trying to be a good corporate citizen and is also considering adding a SIMPLE plan following the 3 percent dollar-for-dollar matching formula. What advice do you have for this company?
A small employer wants to offer a tax-advantaged retirement plan to only their full-time employees. Is an SEP plan a good idea to recommend?
A company wants to establish a tax-advantaged plan for its employees. The company is relatively new and profits are unpredictable with a meaningful amount of variability. The employer would like to reward employees when the company does well and is somewhat concerned that the company has no
Describe the features and restrictions of a 403(b) plan.
Determine when a plan is top heavy and what this indicates for the plan in question.
Describe the savings incentive match plan for employees(SIMPLE) plan and discuss when it should be used.
Understand what makes a simplified employee pension (SEP)plan unique and when it might be useful.
Having heard that you took a class on retirement planning, your cousin approaches you with a question about ESOPs. Your cousin owns a portion of a regional engineering company, and he is planning on selling his interest to the ESOP sponsored by his employer.The ESOP currently owns 52 percent of the
A closely held company has an original owner who is about to retire.The company has a DB pension plan, which has already served the purpose of providing benefits for the current owner. Assume that the owner does not have any family members interested in the business and that the employees have
An employee who is covered by a 401(k) plan mentions to you that she is planning on taking a $15,000 hardship withdrawal from her retirement plan to pay for an unforeseen emergency to renovate their kitchen before the holidays. What would you tell her?
A company has adopted a 401(k) plan. The participants, their respective compensation, and their applicable percentage contributed (including employee and employer match) are as follows:For 2015, who are the HCEs, and what will be their maximum allowable contribution percentage? Eligible employee
A surgeon for a hospital system in rural Kentucky contributes$18,000 in salary deferrals into the 403(b) account at his hospital.This doctor also operates a private medical practice. He is considering establishing a 401(k) within the medical practice to shelter even more money from taxes. How much
An employer approaches you for advice on which type of retirement plan might be best for them. After completing a fact-finding meeting with the employer, you learn that the company has highly unpredictable cash flows. They do not want to assume any investment risk, but they do want the ability to
Understand how an ESOP loan could be applied.
Describe the rules that pertain to stock bonus plans and employee stock ownership plans (ESOPs).
Understand the compliance tests required within a 401(k)plan.
Identify the difference between a hardship withdrawal and a safe harbor withdrawal.
Describe the features and rules that apply to a 401(k) plan.
Describe the basic features of a profit-sharing plan and its potential usefulness.
A 54-year-old rural dentist realizes that he has waited way too long to begin planning for retirement. He wants to establish a qualified retirement plan for himself and two younger employees (both in their mid-20s). They are only able to afford an aggregate $20,000 annual contribution. What type of
A group of construction companies has established a small business with one full-time employee and one part-time employee.The purpose of the small business is to manage union negotiations within the local construction worker population. They would like to establish a retirement benefit for the one
Why would a flat dollar amount per year of service be more attractive to union-based employees?
Most employers want to minimize their costs while still offering some benefit to their employees. Why would an employer want to account for past service in a DB plan?
The owner of a regional car dealership would like to establish a DB plan that helps to retain and reward experienced employees.He also wants to give a meaningful reward to both himself (owner)and other highly compensated employees. His goal is to replace 60 percent of the employees’ working wages
Describe the basic features of an MPPP and its potential usefulness.
Describe a target benefit (TB) plan and its potential usefulness.
Describe the basic features of a cash balance (CB) plan and its potential usefulness.
Identify how benefits can be calculated using a DB plan.
Understand why an employer might choose to offer a DB plan.
Identify the difference between a pension-type plan and a profit-sharing-type plan.
Is there a scenario where an employer might choose to combine a DB plan and a DC plan?
John Smith, the owner of Smith’s European Delicacies, has expressed an interest in establishing a qualified plan for his employees. His goals are to (1) provide a meaningful benefit for his employees, (2) help out a few long-service employees who have been with him for over 15 years, and (3)
Answer these potential client questions:a. Can a DB plan pay the owner of a small business $210,000 (2015 indexed) per year, beginning at age 60?b. Is it true that if an individual works for a company and participates in two separate 401(k) plans (through different subsidiaries), then he or she can
What are two typical roadblocks that financial professionals face when helping clients plan their retirement?
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