Question

Question 6 chapter 5

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Jacques, who is age 45, has just resigned from his current job. He worked for Ace, which sponsors a cash balance plan and a standard 401(k) plan. Each of the plans uses the longest permitted vesting schedule and both plans are top heavy. He has a balance of $40,000 in the cash balance plan, has deferred $20,000 into the 401(k) plan and has employer matching contributions of $10,000. If he has been employed for three years, but only participating in the plans for the 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 so exceptional that the restaurant has become one of the top spots in the city. Mikael, age 55, is the sole owner with compensation of 275,000. Mikael’s son Jamel, age 28, is the master chef with compensation of $100,000. Jamel has been with the restaurant full time since he turned 18. Mikael also employs 15 other individuals whose ages range between 25 and 35 and have compensation on average of $40,000 per year. Mikael wants to establish a profit sharing plan. Which of the following statements is true?
   A.   

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

If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased.
   C.   

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

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

Answer 1

Question 6 Ans D $64000

Question 7 Ans B) If Mikael selected the permitted disparity method and the plan contributes 10 percent per individual, the contribution the company makes for Mikael will be increased.

By using permitted disparity, or integration with Social Security, Mikael can increase the contribution to both himself and Jamel. Answer a is false because the covered compensation limit is $275,000 for 2018; thus, the contribution to Mikael's account using a standard allocation of 10% is $27,500. Answer c is false because an age-based profit sharing is not necessarily in Jamel's best interest. The facts say that the 15 other employees range from age 25 to age 35, with some of these employees being older than Jamel. In this instance, some employees might be allocate d a greater share of the contribution than Jamel. Answer d is false because a new comparability plan is generally more expensive to administer than other plans.