CBP Retirement and Pension Plans 2 — Questions and Answers
Question 1: Under ERISA, what is the fiduciary standard required of plan administrators?
- Business judgment rule
- Prudent investor rule applied solely to maximize returns
- Prudent expert standard acting solely in participant interests (Correct answer)
- Reasonable care standard used in contract law
Correct answer: Prudent expert standard acting solely in participant interests
ERISA fiduciaries must act with the care, skill, prudence, and diligence of a prudent expert and must act solely in the interest of plan participants and beneficiaries.
Question 2: Which type of retirement plan is most commonly associated with public school teachers and non-profit organization employees?
- 401(k)
- 403(b) (Correct answer)
- 457(b)
- SIMPLE IRA
Correct answer: 403(b)
403(b) plans are tax-sheltered annuity plans available to employees of public schools, tax-exempt organizations, and certain ministers.
Question 3: What is a Required Minimum Distribution (RMD) in the context of retirement plans?
- The minimum employer match required by ERISA
- The minimum benefit guaranteed by the PBGC
- The mandatory annual withdrawal from tax-deferred retirement accounts starting at age 73 (Correct answer)
- The minimum vesting schedule for DC plans
Correct answer: The mandatory annual withdrawal from tax-deferred retirement accounts starting at age 73
RMDs are the minimum amounts the IRS requires account holders to withdraw annually from tax-deferred retirement accounts beginning at age 73 under the SECURE 2.0 Act.
Question 4: In a cash balance plan, what represents the employee's accrued benefit?
- Actual investment account balance
- Hypothetical account balance with pay credits and interest credits (Correct answer)
- Final average salary multiplied by years of service
- Employer's actuarial reserve
Correct answer: Hypothetical account balance with pay credits and interest credits
Cash balance plans are defined benefit plans that express the promised benefit as a hypothetical account balance, with annual pay credits and guaranteed interest credits applied.
Question 5: Which non-discrimination test ensures that 401(k) employee deferral contributions do not disproportionately favor highly compensated employees?
- Top-heavy test
- ACP test
- ADP test (Correct answer)
- Coverage test
Correct answer: ADP test
The Actual Deferral Percentage (ADP) test compares the average deferral rates of highly compensated employees to those of non-highly compensated employees to ensure equity.
Question 6: What is a 'safe harbor' 401(k) plan design intended to accomplish?
- Eliminate the need for a plan document
- Automatically satisfy ADP/ACP non-discrimination tests (Correct answer)
- Allow unlimited employer contributions
- Provide PBGC insurance for defined contribution plans
Correct answer: Automatically satisfy ADP/ACP non-discrimination tests
A safe harbor 401(k) plan automatically satisfies the ADP and ACP non-discrimination tests by making required employer contributions that are immediately vested.
CBP Retirement and Pension Plans 2
Under ERISA, what is the fiduciary standard required of plan administrators?