CFP - Retirement Planning (pmf)

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Regarding retirement needs analysis calculations; what is the difference between level and serial payment approaches?

level payment doesnt take inflation into account
serial payments go up every year to account for inflation and are more realistic than level payments

3 assumptions made in retirement needs analysis calculations:

1. anticipated rate of inflation
2. lump sum of capital needed
3. client age at retirement and projected life expectancey

2 steps in determining lump sum capital needed over a retirement period

1. inflate the projected first year retirement income to FV at the time of retirement
2. calculate lump sum needed by calculating PV of an annuity due using an inflation-adjusted rate of return
(set HP to begin mode)

The process for analyzing the accumulation of sufficient resources for retirement is called...

capital needs analysis or retirement needs analysis

what is the 21 and 1 rule?

regarding eligibilty for a qualified plan the EE must be 21 and have one year of service

A highly compensated EE (HCE) meets one of the following criteria:

greater than 5% owner or
$110,000 or more in compensation

As a rule, the ER of the qualified plan must cover at least ____ of the non-highly compensated EEs

70%

What is the 50/40 test?

DB plans must cover 50 EEs or
40% of all eligible EEs

The covered compensation cap for 2011 is:

$245,000

How much can be added to a DC plan for 2011?
The lesser of.....

100% of the participant's annual income or
$49,000 annually (this includes $16,500 max EE salary deferral but not the $5500 catch up

What is the maximum deduction for ER contributions to a defined contribtuion plan?

25% of covered EE payroll

DB plan contributions are determined by ....

an actuary

DB plans must vest at least as rapidly as ...

5-year 100% cliff or
3 -7 year graded vest

DC plan vesting requirements are....

3-year cliff or
2 - 6 year graded vest

Define Key Employee

Greater than $160,000 in 2011 comp
greater than 5% owner -or-
greater than 1% owner and comp greater than $150,000

What is a Top Heavy Plan?

A DB plan that provides more than 60% of benefits to Key Employees

What is the Excess Method with regard to Social Security intergration?

?

The maximum disparity permitted in a DB plan with regard to SS intergration is

26.25%

What is the permitted disparity as it applies to SS integration of a DC plan?

1. 2 times the base percentage
-or-
2. the base percentage plus 5.7%
the lesser of the 2

What is the Section 415 limit on DB payouts?

the lesser of:
$195,000 of annual comp -or-
100% of the EE's comp over the past 3 years averaged

Regarding DB plans; who may opt out of PBGC premiums?

Professional service employers with 25 or fewer EEs

An employee has the following incomes:
year 1: $215,000
year 2: $250,000
year 3: $260,000
What is his career average method to calculate SS benefits?

$235,000
only the $245,000 would be calculated as it is the IRS max

What is a fully insured pension plan?

A plan that is fully funded by cash value life insurance or annuity contracts

What is the maximum annual contribution limit for a money purchase pension plan?

the lesser of 100% of eligible EE comp or $49,000 for 2011

What is a primary disadvantage of a money purchase pension plan?

lack of contribution flexibility
plans severely limit ability to use plan contributions to buy employer stock

How are forfeitures treated in DC and DB plans?

DB: only used to reduce ER contributions
DC: same as above but also can be reallocated among the remaining plan participants

What is the max annual deduction that may be taken for ER's to a DB plan?

the amount required to meet the fundiing standards

A plan using a flat benefit formula would be what type of retirement plan?

Defined Benefit plan

What type of DC plans avoid the ADP and ACP and top heavy rules tests?

safe harbor 401k and a Simple 401k

Retirement plan most frequently used by self employeds

SEP IRA

What is the max contribution to a SEP for 2011?

the lesser of 25% of EE comp or $49,000

What is the max EE deferral allowed for a SIMPLE IRA for 2011?

$11,500 plus $2500 if EE over 50

What is the max EE contribution or salary reduction for a TSA in 2011?

$16,500

true/false
An IRA can not own S-Corp stock

true
it can not

What is the MAGI phase out for deductable IRA contributions for 2011 foor married couples?
For singles?

$169,000 fully phased out at $179,000
$56,000 to $66,000 for singles

true/false
QDROs apply to IRAs

False; QDROs apply only to qualified plans; an IRA is not a qualified plan

Type of retirement plan a 501(c)3 may adopt

403(b)

Type of plan that may only be adopted by a private tax-exempt organization and a state of local government entity

section 457 plan

Type of retirment plan not easily understood by EEs.
Who do they favor?

traditonal DB and target benefit pensions
favor older EEs

true/false
An ESOP can be integrated with SS?

false
ESOPs can not be SS integrated

type of plans that favor older EEs

DB - age based
P/S plans but not as must as DBs

A pension plan would not be appropriate for a company with _____ _____ ______

cash flow fluctuation

2 types of plans appropriate for ERs wanting flexibility of contributions

Profit Sharing and SEP

An EE pays ___% of FICA on wasges up to $___

7.65%
$106,800

A self employed tax payer pays both portions of payroll tax on wage base. Above the wage base this portion is

tax-deductable (above the line) to reach AGI

Individuals/ Entities that can elect to opt out of SS include:

state and local government units with a pension plan

Regarding Social Security what is the PIA?

Primary Insurance Amount
the amount payable on full retirement age

A worker taking early retirement would get a ____ reduction in PIA

30%

Regarding Social Security, what is the blackout period?

the time that the surviving spouse would get no SS

Regarding Social Security, what is the difference between fully insured and fully covered?

see pg 119 in binder

2 types of plans in which the ER assumes the investment risk

DB plans
Cash Balance Plans

What is the difference between a SIMPLE IRA and a SEP IRA?

?

The election out period for a QJSA is

90 days

Type of pension plan that is easily understood and can be implemented as a coost saving measure

cash balance pension plan

The most common types of Keough plans are
____ _____ _____

profit sharing
money purchase
target benefit

Keough funding is unique in that ____ takes the place of ___ in calculating contributions

net self-employment income
W-2 income

type of qualified retirement plan in which participating employees are divided into groups or classes and each group or class receives an employer contribution equal to a percentage of compensation is a(n):

new comparability plan

Assume a company's goal is to maximize retirement benefits to the highly compensated employees, who also happen to be the oldest employees. Which of the following best accomplishes this goal if the company is installing a new plan?

An age-based profit-sharing plan?

An exception to the 21-and-one rule is ....

the 3-year/100% rule that allows up to a 3-year service requirement if the employee is immediately 100% vested in employer contributions upon becoming a participant.

3 qualified retirement plans that allow unrestricted investment into employer-sponsor company stock

Stock bonus plans.
ESOPs.
Profit-sharing plans

In 2011, the total OASDI tax rate, including the portion dedicated to Social Security and the portion dedicated to Medicare funding, on a covered worker's wages up to the taxable wage base is

13.30%
Employers pay 7.65% and employees pay 5.65%, for a total of 13.3% in 2011.

A company's goal is to maximize retirement benefits to the highly compensated employees, who also happen to be the oldest employees. Which plan best accomplishes this goal

A defined benefit plan

The Section 403(b)/TSA lifetime catch-up contribution

is limited to a maximum lifetime limit of $15,000

A prospective client's objectives are to adopt a plan that has predictable costs, is administratively convenient, and is easily communicated to employees. Which plan represents the best choice?

Money purchase plan

An age-based profit-sharing plan is a plan in which:

allocations to participants are made in proportion to the participant's age-adjusted compensation.

A cash balance pension plan is most appropriate when:

the employer wants to convert its defined benefit plan. Cash balance pension plans are appropriate when: the employee group is relatively young,

Which of the following types of qualified plans provide employers with the greatest contribution flexibility?

A) Money purchase plan.

B) Cash balance plan.

C) Defined benefit plan.

D) Profit-sharing plan.

D) Profit-sharing plan

Your client has a retirement plan with separate accounts and 40% of salary as a projected retirement benefit. Which of the following type of plan does your client most likely have?

A) Money purchase pension plan.

B) Defined benefit plan.

C) Cash balance plan.

D) Target benefit plan.

D) Target benefit plan

How much of the employer contribution made to employees' simplified employee pension (SEP) IRAs may be deducted on the business's tax return?

The maximum amount that may be contributed and deducted by the employer is the lesser of 25% of compensation or $49,000 (2011) for each participant.

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