Log in
HomeClass Notes1,200,000US530,000

TAX 9873 Lecture Notes - Lecture 46: Defined Contribution Plan, Pension, Employee Retirement Income Security Act

12 views5 pages
scarletsnail973
20 Dec 2019
School
Baruch College
Department
Tax
Course
TAX 9873
Professor
Vitucci

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

A defined contribution (dc) provides for an individual account for each participant and for benefits based solely on the value of that account. Account balance reflects contributions, forfeitures, and investment earnings and losses allocated to the account during the employee"s period of participation. Represents his/her share of the value of the trust assets. When the employee takes distribution of his/her account balance, the amount paid will be based on the value of the account balance at that time (or as of the most recent valuation date specified in the plan). Account balance that will be available to provide benefits at retirement (or upon another distribution event) is not guaranteed, because fluctuations in the value of assets directly affect the account balance. Benefits are guaranteed only in a defined benefit plan. A profit sharing plan is a type of defined contribution plan. Not a pension plan; must be designated as a profit sharing plan.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

TAX 9873 Lecture Notes - Lecture 12: Collegehumor, Ratio Test
scarletsnail973
TAX 9873 Lecture Notes - Lecture 6: Basis Of Accounting, Pension, Profit Sharing
scarletsnail973
TAX 9873 Lecture Notes - Lecture 27: Life Annuity, Life Table, Cash Balance Plan
scarletsnail973

Related Questions

Question 1

  1. Life insurance is viewed as favorable in defined benefit plans because it adds to the limit on deductible contributions

    True

    False

2 points

Question 2

  1. Some of the advantages of using life insurance in a qualified plan includethe following except:

    plan costs for employer are predictable

    life insurance is considered to be a very safe investmen

    greater rates of return on insurance cash value than alternative investments

    retirement benefits can be guaranteed by both the insurance company and employer

    low cost installation and service of the plan

2 points

Question 3

  1. A defined benefit plan can help an older employee in a small business maximize tax-deferred savings.

    True

    False

2 points

Question 4

  1. IRS sets a maximum limit on the projected annual benefit that a defined benefit plan can provide a participant.

    True

    False

2 points

Question 5

  1. An employee can be covered under both a defined benefit and a defined contribution plan.

    True

    False

2 points

Question 6

  1. Which type of plan has benefit levels that are guaranteed by the employer and also the Pension Benefit Guaranty Corporation (PBGC)?

    money purchase plan

    defined benefit plan

    target benefit plan

    cross tested plan

    tax deferred annuity

2 points

Question 7

  1. Regarding a cash balance plan, which of the following is (are) true?

    the employee bears investment risk

    each participant has a hypothetical account that the employer credits at least annually

    the plan benefits older workers more than younger workers

    1 and 3

    2 and 3

2 points

Question 8

  1. A traditional defined benefit plan and a cash balance plan share the following characteristics:

    Pension Benefit Guaranty Corporation coverage

    employer bears investment risk

    able to use Social Security integration

    all of these

    only 1 and 2

2 points

Question 9

  1. If an employer wants to reward an employee

Hi, Please help me to solve these questions with detailexplanation . Thanks

Question 4
Dustin, who is 48 years old, works for Pinnacle Inc., with a salaryof $300,000, a car allowance, and a very nice expense account.Pinnacle is a Fortune 1,000 company that sponsors a defined benefitplan that pays 2 percent times years of participation times theaverage of the three final years of compensation. In addition,Pinnacle sponsors a 401(k) / profit sharing plan and contributes18% of employees salary to the profit sharing plan. There is noadditional match. If the ADP of the NHCEs is 3%, what is themaximum that Dustin can defer this year (2018)?
A.

$5,500.
B.

$13,750.
C.

$15,000.
D.

$18,500.

Question 5
Larry, age 55, is employed by BB Trucking Company as a tire repairspecialist. He earns $62,000 per year and received an allocation of$40,000 to his employer-provided profit sharing plan for the year.If BB Trucking does not match employee deferrals, what is themaximum amount Larry can defer to his 401(k) plan for the 2018 planyear?
A.

$15,000
B.

$18,500
C.

$21,000
D.

$24,500

Question 6
Jacques, who is age 45, has just resigned from his current job. Heworked for Ace, which sponsors a cash balance plan and a standard401(k) plan. Each of the plans uses the longest permitted vestingschedule and both plans are top heavy. He has a balance of $40,000in the cash balance plan, has deferred $20,000 into the 401(k) planand has employer matching contributions of $10,000. If he has beenemployed for three years, but only participating in the plans forthe last two years, how much does he keep if he leaves today?
A.

$ 20,000.
B.

$30,000.
C.

$60,000.
D.

$64,000.

Question 7
Mikael opened a fabulous restaurant ten years ago. The food is soexceptional that the restaurant has become one of the top spots inthe city. Mikael, age 55, is the sole owner with compensation of275,000. Mikael’s son Jamel, age 28, is the master chef withcompensation of $100,000. Jamel has been with the restaurant fulltime since he turned 18. Mikael also employs 15 other individualswhose ages range between 25 and 35 and have compensation on averageof $40,000 per year. Mikael wants to establish a profit sharingplan. Which of the following statements is true?
A.

If Mikael selected the standard allocation method and the plancontributes 10 percent per individual, the plan will contribute$55,000 to Mikael’s account.
B.

If Mikael selected the permitted disparity method and the plancontributes 10 percent per individual, the contribution the companymakes for Mikael will be increased.
C.

Considering the needs and wants of Mikael and Jamel, anage-based profit sharing plan is the best plan for both ofthem.
D.

A new comparability plan is the least expensive, simplest way tomeet both Mikael and Jamel’s retirement needs.
Question 8

Which of the following statements regarding an age-based profitsharing plan is correct?
A.

An age-based profit sharing plan provides a greater benefit tothose plan participants whose earnings exceed the Social Securitywage base and who are over fifty years old.
B.

An age-based profit sharing plan only provides a benefit tothose plan participants whose age is within 10 years of the age ofthe owner of the plan sponsor.
C.

An age-based profit sharing plan provides greater benefits tothe older plan participants.
D.

Younger plan participants in an age-based profit sharing planusually receive the majority of the profit sharing planallocation.

Question 9 :
Acme Inc., is establishing a retirement plan and they want a planthat includes a Roth account. Which of the following statements iscorrect about Roth accounts?
A.

Matching contributions can be contributed to Roth account.


B.

Amounts in a traditional 401(k) plan cannot be rolled over to aRoth account.
C.

Roth accounts do not require minimum distributions until afterthe death of the participant.


D.

Roth accounts permit access for taxpayers who may otherwise notbe able to contribute to a Roth IRA.

Question 10
Which of the following qualified plans would allocate a higherpercentage of the plan’s current contributions to a certain classor group of eligible employees?

A profit sharing plan that uses permitteddisparity.
An age-based profit sharing plan.
A defined benefit pension plan.
A target benefit pension plan.

A.

1 only
B.

1 and 3
C.

2 and 4
D.

1, 2, 3, and 4

1.Pension benefits represent deferredcompensation for current service.

A) True
B) False

2.Pension costs are recognized on an accrualbasis over the years employees earn pension benefits.

A) True
B) False

3.Almost all new pension plans pay definedbenefits.

A) True
B) False

4.Defined contribution plans require employersto make fixed payments to but not from a pension fund.

A) True
B) False

5.Defined contribution retirement benefits paidto retired employees dependend on how well the pension planactaully performs.

A) True
B) False

6.In chapter 17, our text's authors seem tosuggest that actual results rarely differ from actuarialestimates.

A) True
B) False

7.US GAAP requires that corporations reportboth pension plan assets and liabilities on their balancesheets.

A) True
B) False

8.Our text indicates that actuarial estimatesof projected benefits may be more reliable than actuartialestimates of accumulated benefits.

A) True
B) False

9. In Illustraton 17-6A on page 1005,retirement benefits have been discounted at 6%.

A) True
B) False

10

Retroactive changes to the way pension benefits are determeinedcan result in prior service costs.

A) True
B) False

11.

When calculating the present value of retirement benefits, lowerdiscount rates reduce PBO estimates.

A) True
B) False

12.

Retriement benefits paid to employees always reduce projectedbenefit obligations.

A) True
B) False

13. In chapter 17, our authors suggest thattoday, it's very unusual for pension plans to be underfunded.

A) True
B) False

14. A company's PBO is reported as a separatelibilitiy on its balance sheet.

A) True
B) False

15. Pension expense calculatons are made usingexpected returns on plan assets.

A) True
B) False

16. Prior service costs are amortized overtime, not immediately expensed when incurred.

A) True
B) False

17. Gains or losses arise whenever the PBO orreturn on plan assets turn out to be different than expected.

A) True
B) False

18. Amortizing net gains would will makepension expense calculations grow larger.

A) True
B) False

19. Amortized gains and losses are reclassifiedfrom OIC to net income.

A) True
B) False

20. Service and interest costs increase PBOcalculation.

A) True
B) False

21. Under International Financial ReportingStandards (IFRS) OCI gains and losses are not amortized butaccumulate.

A) True
B) False

22. Given an actual return on plan assets of$30 and a gain on plan assets of $3, expected return on plan assetswould be $27.

A) True
B) False

23. Given a beginning PBO of $400 and adiscount rate of 6%, interest cost would be $24.

A) True
B) False

24. Analysis of exercise 17-8 on page 1043indicates Sterling Properties earned a $9,000 gain on plan assetsin 2016.

A) True
B) False

25. The actual return on plan assets Abbot andAbbot earned in exercise 17-10 was less than their expectedreturn.

A) True
B) False

26. Fahy Transportation's pension expense wouldinclude an interest cost of $51.1 million in exercise 17-7.

A) True
B) False

27. In CPA Exam Question 1 on page 1050, WolfInc. would report a net pension liability of $85,000 on its balancesheet.

A) True
B) False

28. The correct answer to CPA Exam Question 8on page 1051 is letter c.

A) True
B) False

29. Analysis of Judgment Case 17-3 on page 1061indicates LDG Consulting's pension is overfunded by $405,000 at theend of 2016.

A) True
B) False

30. After studying chapter 17, it would bereasonable to conclude athat GM would account for its pension planamendment in Real World Case 17-9 on page 1063 as a prior servicecost.

A) True
B) False0