Chartered Retirement Planning Counselor SM Professional Designation Program

1. Chartered Retirement Planning CounselorSM Professional Designation Program Final Review Questions

2. Question 1 Andy and Lori Cookston had a combined gross salary of $85,000 in 201X. Other cash inflows amounted to $9,800. Their fixed cash outflows were $26,300, and their variable cash outflows were $64,700. What was the Cookstons' net cash flow for 201X? • $6,000 deficit • $3,800 • $30,100 • $68,500

3. Question 2 Mary wants to have a retirement income of $60,000 protected against 3% inflation. She assumes that she will earn 9%, and wants to have the income for 30 years. How much capital will be required to provide Mary this much income at the first of each year? (Set your calculator for four decimal places.) • $616,419 • $671,897 • $841,589 • $890,589

4. Question 3 Sally needs an annual retirement income of $48,000 protected against 2% inflation. You are to assume that she will earn 8%, and wants to have the income for 25 years. How much capital will be required to provide Sally this much income at the first of each year? • $512,389 • $553,380 • $620,521 • $657,022

5. Question 4 The 10% early withdrawal penalty applies to all of the following distributions except when • the participant, age 45, receives a distribution of $5,000 per year for five years after terminating employment. • the participant, age 56, withdraws $155,000 from his IRA after separating from service. • the participant, age 50, receives a $50,000 distribution from the company profit-sharing plan after terminating employment. Forty-five days later, she is totally disabled. • the participant, age 45, withdraws $508 per month for 10 months after terminating employment to pay for medical insurance. She received unemployment compensation for 14 weeks following her termination.

6. Question 5 Which one of the following types of qualified plans is not subject to the 25% maximum employer contribution limit? • LESOP • stock bonus ESOP • profit sharing ESOP • simplified employee pension plan (SEP)

7. Question 6 Which one of the following is not a characteristic of a simplified employee pension (SEP)? • mandatory annual contributions • statutory eligibility requirements • lack of vesting schedules • may be established as late as the due date of the employer’s tax return

8. Question 7 Which one of the following is not a correct statement about a SIMPLE 401(k) plan? • The employer does not have the option of providing a 2% nonelective contribution. • To offer a SIMPLE 401(k) plan, the employer cannot have more than 100 employees who earn $5,000 or more. • To offer a SIMPLE 401(k) plan, the employer cannot sponsor another qualified plan. • An employee may elect to contribute up to $17,000 of her salary per year.

9. Question 8 Roger works for the state and participates in the Section 457 plan offered by the state. Roger’s annual salary from the state is $60,000. Roger also qualifies for a SIMPLE IRA with a firm where he works part time. In 2013, Roger deferred $5,000 of his part-time earnings to the SIMPLE IRA. What is the maximum amount Roger can contribute to the Section 457 plan for 2013? • $5,500 • $12,500 • $17,500 • $35,000

10. Question 9 To qualify for lump-sum tax treatment, a distribution must meet all the following requirements except • it must be made in one taxable year. • it must be payable due to the participant’s death or reaching age 59½. • it must be made from a qualified plan. • it must represent at least 50% of the participant’s balancefrom all qualified plans of a single type.

11. Question 10 Distributions from qualified plans, 403(b) plans, SEPs, SIMPLEs, and IRAs are assessed a 10% penalty if they are taken before age 59½. Which of the following is not an exception to this penalty? • The distribution is made to pay homeowner’s association dues. • The plan participant dies prior to age 59½ and the distribution goes to the participant’s beneficiary. • The distribution is attributed to a permanent disability. • Distributions are made of a series of substantially equal periodic payments of the plan participant’s life expectancy.

12. Question 11 Participant loans are permitted from • qualified retirement plans and IRAs. • IRAs and 403(b)s. • qualified plans and 403(b)s. • SEPs and qualified plans.

13. Question 12 Defined contribution plans that are subject to minimum funding standards are required to provide a qualified joint survivor annuity (QJSA). Profit sharing plans are not required to provide a QJSA if which of the following conditions are met? • The plan does not allow for any life annuity options. • The plan does not accept direct transfers from other plans that are subject toQJSA. • The plan provides that the participant’s vested benefits are payable in full to the participant’s spouse in case the participant dies prior to retirement. • I only • I and II only • II and III only • I, II, and III

14. Question 13 Which of the following events would result in income taxation to a plan participant? • The participant rolls over his or her assets into a conduit IRA, then rolls over the assets into another qualified plan. • The participant takes a distribution from a qualified plan and rolls it over into an IRA 75 days later. • The participant uses a direct transfer to move his plan assets from one qualified plan to another. • The participant accepts a check made out to the trustee of an IRA and delivers it to the trustee one day later.

15. Question 14 All the following are health plan options under Medicare Advantage plans except • Medicaid Provider Plans (MPPs). • Health Maintenance Organizations (HMOs). • Preferred Provider Organizations (PPOs). • Private fee-for-service plans.

16. Question 15 Which of the following is not a requirement to be eligible for Social Security disability benefits? • An individual must be younger than the Social Security normal retirement age. • The disability must be terminal or expected to last at least 12 months. • After age 31, the worker must have worked in Social Security employment for at least five of the last ten years. • The individual must have had average annual earnings of at least $15,000 during five of the last ten years.

17. Question 16 Which one of the following is not considered to be a qualified medical expense for purposes of the Health Savings Account rules? • premium payments for Medicare Part A • premium payments for Medicare Part B • premium payments for long-term care insurance • premium payments for a Medigap policy

18. Question 17 Which of the following is not an example of a gift subject to the federal gift tax? • forgiving a legal debt of $19,000 owed by a friend • exchanging property worth $25,000 for property worth $11,000 • paying a friend’s legal fees of $15,000 • paying a niece’s hospital bill of $25,000

19. Question 18 Robert made a gift to John of property worth $50 for which he had paid $75 two years ago. One year after the gift, John sold the property for $45. Which one of the following amounts represents John’s basis in the property to compute his gain or loss? • $45 • $50 • $75 • The basis cannot be determined based on the information provided.

20. Question 19 Stock A has an expected return of 15% and a standard deviation of 7.5%. Stock B has an expected return of 18% and a standard deviation of 9%. Based on the coefficient of variation, which stock has more relative risk? • Stock A. • Stock B. • Both have the same relative risk. • The two stocks cannot be compared.

21. Question 20 The correlation of asset class returns is • useful since it increases their aggregated return. • important since it increases as interest rates decline. • a measure of how the asset classes’ returns move relative to one another. • caution flag since it is an indication of excessive risk.

22. Question 21 Henry and his wife Etta will both reach their NRAs this month, and they both plan to begin receiving Social Security benefits next month. Etta’s primary insurance amount (PIA) is $1,900; Henry’s PIA is $975. What will their Social Security benefit be? • Etta will receive $1,900, and Henry will receive 50% of Etta’s PIA. • They will both receive their respective PIAs. • Henry will receive his PIA plus 50% of Etta’s PIA; Etta will receive her PIA plus 50% of Henry’s PIA. • Their total benefits cannot exceed $2,500, the maximum allowed by law for a married couple.

23. Question 22 Susan Edwards is the president of research and development for Bionic Pharmaceutical, and she earns an annual salary of $600,000. Susan will be entitled to an annual retirement benefit equal to $130,000 under the formula of the company’s qualified defined benefit plan. Which one of the following nonqualified deferred compensation plans should be used to make Susan whole for the loss of benefits caused by the qualified plan compensation limit? • excess benefit plan • top hat plan • pure deferred compensation plan • secular trust

24. Question 23 Which one of the following retirement plans is exempt from the requirements of ERISA? • funded excess benefit plan • funded supplemental executive retirement plan • unfunded excess benefit plan • unfunded supplemental executive retirement plan

25. Question 24 Regarding defined contribution plans, it is not true that • there are no “reduced benefit” provisions. • they promise to pay a particular benefit at retirement. • they provide a separate account for each participant. • participants are offered their vested benefit in a lump sum at retirement.

26. Question 25 Early retirement programs typically may not offer • enhancement of pension benefits in excess of ERISA regulations. • severance benefits. • health and insurance benefits. • pre-retirement and tax counseling.

27. Question 26 “Golden parachute” agreements may include which of the following? • cash • company stock • medical and life insurance • extra pension benefits • I only • I and IV only • II and III only • I, II, III, and IV

28. Question 27 The asset allocation approach that seeks to provide optimal balance between expected risk and expected return for a long-term investment horizon is called • tactical allocation. • value/growth allocation. • optimal risk/return allocation. • strategic allocation.

29. Question 28 Which one of the following types of qualified plans is considered to be a defined benefit plan? • profit sharing plan • target benefit plan • cash balance plan • money purchase pension plan

30. Question 29 Which one of the following is a possible disadvantage of a nonqualified deferred compensation plan? • It gives the employer little flexibility in targeting plan benefits. • It can only be designed as a salary reduction agreement. • Income tax rates may actually be higher by the time an executive retires. • The Section 409A provision that requires the removal of any forfeiture provision in the plan.

31. Question 30 What will be the amount and character of the loss carryover to the subsequent year, if any, if Sally has the following capital transactions during the year? • Long-term capital loss on sale of ABC stock $(6,500) • Long-term capital gain on sale of DEF stock $ 2,200 • Short-term capital gain on sale of XYZ stock $ 1,000 • $0 • $300 short-term capital loss carryover • $300 long-term capital loss carryover • $1,300 long-term capital loss carryover • $1,300 short-term capital loss carryover

32. Chartered Retirement Planning CounselorSM Professional Designation Program Final Review QuestionsEnd of Slides