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NIPA APA practice questions

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Question 1Pension Administration (source does not enumerate domains)

Under a typical defined benefit pension plan, which factor most directly determines the participant's monthly benefit at normal retirement age?

  1. The final average salary, years of credited service, and the plan's benefit accrual formula Correct answer.
  2. The investment return earned by the plan's equity portfolio in the final year
  3. The number of hours the participant worked during the final plan year
  4. The participant's total employee contributions accumulated with interest

Explanation

Defined benefit formulas generally tie the annuity to compensation and service, commonly expressed as a percentage of final average pay multiplied by years of service. Investment results and contribution balances affect funding, not the promised benefit formula itself.

Question 2Pension Administration (source does not enumerate domains)

A participant terminates employment with vested benefits in a defined contribution plan. Which statement correctly describes the participant's entitlement?

  1. The participant receives only the investment earnings attributable to employer contributions
  2. The participant must leave the balance in the plan until normal retirement age
  3. The participant is entitled to the vested portion of the account balance, including vested employer contributions and all employee contributions Correct answer.
  4. The participant forfeits employer contributions but keeps all employee deferrals

Explanation

In a defined contribution plan, employee contributions are always fully vested, and the participant retains the vested percentage of employer contributions. Nonvested employer amounts are forfeited according to the plan's vesting schedule.

Question 3Pension Administration (source does not enumerate domains)

Which event typically constitutes a distributable event permitting an in-service distribution from a qualified retirement plan?

  1. Receiving a performance bonus
  2. Changing job titles within the same employer
  3. Reaching the plan's stated in-service distribution age or attaining a specified age such as 59½, if the plan permits Correct answer.
  4. Completing one year of service

Explanation

In-service distributions are permitted only when the plan authorizes them and the participant meets the specified triggering condition, such as attaining age 59½ or the plan's normal retirement age. Internal job changes, service milestones, or bonuses do not create distributable events.

Question 4Pension Administration (source does not enumerate domains)

What is the primary purpose of the annual funding notice required for defined benefit plans?

  1. To disclose the plan's funding status, assets, liabilities, and participant counts to participants and beneficiaries Correct answer.
  2. To authorize the plan sponsor to reduce accrued benefits
  3. To report each participant's individual accrued benefit to the tax authority
  4. To certify the plan's investment performance against a benchmark index

Explanation

The annual funding notice communicates the plan's funded status and related financial information to participants, beneficiaries, and others. It is a transparency disclosure, not an authorization to cut benefits or a performance report.

Question 5Pension Administration (source does not enumerate domains)

A participant wants to name a beneficiary for survivor benefits. Which document governs the beneficiary designation?

  1. The participant's personal will, which always overrides plan records
  2. The employer's human resources handbook
  3. The plan's summary plan description alone
  4. The beneficiary designation form filed in accordance with plan procedures and applicable law Correct answer.

Explanation

Beneficiary designations must be made in accordance with plan procedures, typically on a form filed with the plan administrator. Plan documents and federal rules generally control over a will for ERISA plan benefits.

Question 6Pension Administration (source does not enumerate domains)

Which of the following best describes the role of the plan administrator in a pension plan?

  1. The investment manager who selects the plan's asset allocation
  2. The trustee who holds legal title to plan assets
  3. The party responsible for the day-to-day operation and administration of the plan in accordance with the plan documents Correct answer.
  4. The actuary who certifies the plan's funding levels

Explanation

The plan administrator is the fiduciary charged with operating the plan according to its terms and applicable law, handling enrollments, distributions, and disclosures. Investment managers, actuaries, and trustees perform distinct functions.

Question 7Pension Administration (source does not enumerate domains)

A participant requests a loan from her 401(k) plan. Which condition must generally be satisfied for the loan to avoid being treated as a taxable distribution?

  1. The loan must be repaid within five years unless used to purchase a principal residence, and must not exceed statutory limits Correct answer.
  2. The loan must be approved by a majority of plan participants
  3. The loan must be repaid entirely within one year
  4. The loan must be secured by the participant's future salary

Explanation

Plan loans avoid taxable distribution treatment only if they satisfy statutory requirements, including a maximum repayment period of five years (longer for principal residence loans) and dollar and percentage limits. Participant voting and salary pledges are not required.

Question 8Pension Administration (source does not enumerate domains)

Which statement accurately describes a required minimum distribution (RMD) from a traditional IRA?

  1. RMDs must begin by the required beginning date and are calculated using life expectancy tables based on the owner's age Correct answer.
  2. RMDs are optional and may be deferred indefinitely
  3. RMDs must be taken monthly
  4. RMDs are calculated using the account's highest historical balance

Explanation

Traditional IRA owners must begin taking required minimum distributions by the required beginning date, with amounts determined from account balances and IRS life expectancy tables. They cannot be deferred indefinitely and are not required monthly.

Question 9Pension Administration (source does not enumerate domains)

A plan sponsor wants to amend the plan to change the matching contribution formula for future service. Which constraint applies under the anti-cutback rule?

  1. The amendment may reduce future accruals but cannot eliminate or reduce benefits already accrued Correct answer.
  2. The amendment is prohibited entirely once the plan is established
  3. The amendment requires participant consent in all cases
  4. The amendment may retroactively reduce all accrued benefits if the sponsor provides notice

Explanation

The anti-cutback rule prohibits amendments that reduce accrued benefits, but prospective changes to benefit formulas for future service are generally permissible. Retroactive reductions of accrued benefits are not allowed merely with notice.

Question 10Pension Administration (source does not enumerate domains)

An employee covered by a multiemployer pension plan asks how her benefit is determined. Which characteristic distinguishes a multiemployer plan from a single-employer plan?

  1. It is exempt from ERISA fiduciary standards
  2. It is maintained under one or more collective bargaining agreements and contributions are pooled across participating employers Correct answer.
  3. It is funded solely by employee contributions
  4. It provides only lump-sum benefits

Explanation

Multiemployer plans are collectively bargained and maintained by two or more unrelated employers, typically in the same industry, with pooled assets. They are not employee-funded only, are not limited to lump sums, and remain subject to ERISA fiduciary rules.

Question 11Pension Administration (source does not enumerate domains)

A participant is terminating and wants to roll over a distribution to another employer's plan. Which statement about eligible rollover distributions is correct?

  1. Rollovers must be completed within 30 days of distribution
  2. Rollovers are permitted only to IRAs, never to another employer plan
  3. Rollovers are taxable in the year of distribution regardless of timing
  4. The participant may roll over the eligible amount to an IRA or another eligible employer plan, generally without current taxation if done properly Correct answer.

Explanation

Eligible rollover distributions may be rolled to an IRA or another eligible employer plan, preserving tax deferral when the rollover is completed within the applicable period. The 60-day rollover window, not 30 days, generally applies.

Question 12Pension Administration (source does not enumerate domains)

A plan uses a vesting schedule of 2-to-6 years graded vesting for employer matching contributions. A participant with three years of service terminates. What is the participant's vested percentage under a typical 2-6 graded schedule?

  1. 100%
  2. 60% Correct answer.
  3. 40%
  4. 20%

Explanation

Under a 2-to-6 year graded schedule, vesting typically begins at 20% after two years and increases by 20 percentage points annually, reaching 60% after four years. With three years of service, the participant would generally be 40% vested, so the correct figure depends on the exact schedule; where the schedule starts at year two, three years yields 40%.

Question 13Pension Administration (source does not enumerate domains)

Which situation would most likely require the plan administrator to issue a blackout notice to participants?

  1. A temporary suspension of participant-directed investment or distribution rights lasting more than three consecutive business days Correct answer.
  2. A routine quarterly benefit statement mailing
  3. A change in the plan's recordkeeper without service interruption
  4. An annual enrollment meeting

Explanation

Blackout notices are required when a temporary suspension of account access or distribution rights exceeds three consecutive business days. Routine statements, meetings, and uninterrupted recordkeeper changes do not trigger the notice.

Question 14Pension Administration (source does not enumerate domains)

A participant in a cash balance plan asks how the benefit is expressed. Which description is accurate?

  1. A defined contribution account owned and directed by the participant
  2. A benefit determined by the employer's profitability each year
  3. A hypothetical account balance credited with pay credits and interest credits, payable as an annuity or lump sum Correct answer.
  4. A benefit based solely on the plan's investment returns

Explanation

Cash balance plans are defined benefit plans that express benefits as a hypothetical account with pay credits and interest credits. Participants do not direct investments, and benefits are not tied to employer profits.

Question 15Pension Administration (source does not enumerate domains)

An employer maintains a plan with a qualified default investment alternative (QDIA). What protection does QDIA status generally provide?

  1. Exemption from ERISA reporting requirements
  2. Fiduciary relief for the automatic investment of participant contributions when no investment election is made Correct answer.
  3. A guarantee that the investment will not lose value
  4. Automatic vesting of all employer contributions

Explanation

QDIA rules provide fiduciary relief when participant contributions are automatically invested in a qualifying default fund absent an election. QDIA status does not guarantee principal, waive reporting, or change vesting.

Question 16Pension Administration (source does not enumerate domains)

A participant submits a domestic relations order dividing her pension benefit with a former spouse. When does the order become a qualified domestic relations order (QDRO)?

  1. When the plan administrator determines it satisfies the statutory requirements and approves it Correct answer.
  2. When the former spouse files it with the tax authority
  3. When the participant signs it
  4. When a court signs any order dividing the benefit

Explanation

A domestic relations order becomes a QDRO only after the plan administrator reviews it and determines it meets statutory content and form requirements. A court signature alone does not make it qualified.

Question 17Pension Administration (source does not enumerate domains)

Which statement best describes the fiduciary duty of loyalty under ERISA?

  1. A fiduciary must maximize the plan sponsor's share price
  2. A fiduciary must act solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses Correct answer.
  3. A fiduciary may use plan assets for the sponsor's business if disclosed
  4. A fiduciary must follow the employer's instructions even when they conflict with plan terms

Explanation

The duty of loyalty requires fiduciaries to act exclusively for participants and beneficiaries in providing benefits and covering reasonable plan expenses. Fiduciaries may not use plan assets for the sponsor's benefit or subordinate participant interests to employer directives.

Question 18Pension Administration (source does not enumerate domains)

A plan sponsor discovers that a participant received an overpayment several years ago. What is the most appropriate first step in administering the correction?

  1. Immediately reduce the participant's future benefit without notice
  2. Recover the full amount by any means necessary regardless of plan terms
  3. Identify the cause and extent of the overpayment and determine the applicable correction method under the plan's procedures and IRS correction guidance Correct answer.
  4. Ignore the overpayment if it is small

Explanation

Overpayments should be analyzed to determine cause and scope, then corrected using an appropriate method consistent with plan terms and IRS correction programs. Unilateral reductions without notice or ad hoc recovery are not appropriate.

Question 19Pension Administration (source does not enumerate domains)

A participant reaches age 72 and is still employed by the plan sponsor. Under the general rule for a qualified plan, when must distributions begin?

  1. Distributions must begin immediately upon attaining age 72 regardless of employment
  2. Distributions generally may be delayed until April 1 following the later of the year the participant attains the applicable age or retires, if the plan permits Correct answer.
  3. Distributions must begin at age 65 in all cases
  4. Distributions may be deferred indefinitely while employed

Explanation

For employees still working, the required beginning date may be delayed to April 1 following the later of the year the applicable age is reached or the year of retirement, if the plan allows. The working exception does not permit indefinite deferral.

Question 20Pension Administration (source does not enumerate domains)

Which of the following is a key difference between a defined benefit plan and a defined contribution plan regarding investment risk?

  1. In a defined contribution plan, the employer guarantees a benefit
  2. In a defined benefit plan, participants direct the investment of plan assets
  3. In a defined benefit plan, the employer generally bears investment risk; in a defined contribution plan, the participant generally bears it Correct answer.
  4. In both plans, the employer bears all investment risk

Explanation

Defined benefit plans promise a specified benefit, so the employer generally bears funding and investment risk. In defined contribution plans, the participant's account fluctuates with investment results, so the participant bears the risk.

Question 21Pension Administration (source does not enumerate domains)

A plan administrator must furnish a summary of material modifications (SMM) to participants. Within what general timeframe must the SMM be provided after a material change is adopted?

  1. Generally within 210 days after the end of the plan year in which the change is adopted Correct answer.
  2. Within 5 business days of adoption
  3. Only upon request by a participant
  4. Within 30 days of adoption in all cases

Explanation

Material changes are generally communicated through an SMM within 210 days after the end of the plan year in which the amendment is adopted. Shorter deadlines or on-request disclosure do not reflect the general rule.

Question 22Pension Administration (source does not enumerate domains)

A plan fiduciary is considering selecting an investment fund with a higher fee than alternatives. Which analysis best satisfies the fiduciary standard?

  1. Always select the lowest-cost fund regardless of strategy
  2. Select the fund with the highest recent returns without further review
  3. Defer entirely to the recordkeeper's recommendation without independent review
  4. Document a reasoned evaluation showing the fund's cost is justified relative to its expected risk and return and consistent with the plan's investment policy Correct answer.

Explanation

Fiduciaries must evaluate cost in relation to value, documenting a prudent process rather than reflexively choosing the cheapest option. Highest recent returns or blind deference to a vendor do not demonstrate a prudent process.

Question 23Pension Administration (source does not enumerate domains)

A participant's benefit is subject to a qualified preretirement survivor annuity (QPSA). What is the primary purpose of the QPSA requirement?

  1. To allow the participant to waive all spousal rights without consent
  2. To provide a survivor benefit to the surviving spouse if the participant dies before retirement Correct answer.
  3. To guarantee the participant a lump-sum payment at termination
  4. To require the spouse to contribute to the plan

Explanation

The QPSA ensures a surviving spouse receives a benefit if a vested participant dies before retirement. It does not create a lump-sum guarantee, and spousal waiver generally requires consent.

Question 24Pension Administration (source does not enumerate domains)

An employer maintains both a defined benefit plan and a defined contribution plan covering the same employees. Which limit concept applies to the combined benefits?

  1. There is no limit on combined benefits
  2. The combined limit applies only to defined contribution plans
  3. The combined limit applies only to multiemployer plans
  4. The section 415 combined limit restricts the aggregate benefit and contribution that may be provided Correct answer.

Explanation

Section 415 imposes limits on benefits and contributions, and a combined limit applies when an employee participates in both a defined benefit and a defined contribution plan of the same employer. The limit is not restricted to one plan type or to multiemployer plans.

Question 25Pension Administration (source does not enumerate domains)

A plan sponsor is considering a partial plan termination. Which factor is most relevant to that determination?

  1. Whether the plan changed recordkeepers
  2. Whether the plan's investment returns declined
  3. Whether the plan added a new investment option
  4. Whether a significant number of participants experienced an involuntary termination during the relevant period Correct answer.

Explanation

A partial termination generally turns on whether a significant percentage of participants were involuntarily terminated, which can trigger full vesting for affected participants. Recordkeeper changes, investment performance, and new options are not the relevant test.

Question 26Pension Administration (source does not enumerate domains)

A defined benefit plan participant wants to know the amount of her accrued benefit that must be paid if she retires at normal retirement age. Which measure expresses that benefit under the plan's formula?

  1. A lump-sum account balance equal to employee contributions plus interest
  2. The actuarial value of the trust's total assets divided by participant headcount
  3. A monthly benefit payable for life beginning at normal retirement age Correct answer.
  4. The participant's final average compensation without regard to service

Explanation

A defined benefit plan promises a benefit, and the accrued benefit is generally expressed as an annuity payable at normal retirement age, commonly a monthly life annuity. Account balances and asset-share calculations belong to defined contribution arrangements, not to the defined benefit promise itself. Final pay alone ignores the service and formula factors that produce the accrued benefit.

Question 27Pension Administration (source does not enumerate domains)

An employer's profit-sharing plan document states that employer contributions are entirely discretionary. What does this generally mean for the employer's funding obligation in a given year?

  1. The employer must contribute at least the prior year's amount
  2. The employer must contribute whenever profits exceed zero
  3. The employer may contribute nothing for that year Correct answer.
  4. The employer must contribute the maximum deductible amount

Explanation

In a discretionary profit-sharing plan, the employer decides each year whether and how much to contribute, and a zero contribution is permissible within the plan terms. There is no required minimum tied to prior contributions or to the mere existence of profits. Contributing the maximum deductible amount is an option, never an obligation.

Question 28Pension Administration (source does not enumerate domains)

A participant in a 401(k) plan wants to direct the investment of her own account among the plan's designated options. Which statement describes the plan fiduciary's responsibility when the participant gives valid investment directions?

  1. The fiduciary is relieved of liability for losses resulting from the participant's directions Correct answer.
  2. The fiduciary must guarantee a minimum return on the participant's selections
  3. The fiduciary remains liable for the participant's individual investment results
  4. The fiduciary must override directions that appear imprudent for the participant

Explanation

When a plan complies with the participant-direction rules, including offering a broad range of options and providing required disclosures, fiduciaries are generally not liable for losses that flow from a participant's own investment choices. The fiduciary still must prudently select and monitor the menu, but it does not guarantee returns or second-guess each direction. Overriding a valid direction is not the fiduciary's role.

Question 29Pension Administration (source does not enumerate domains)

A plan administrator is preparing the annual funding notice for a defined benefit plan. Which item is this disclosure primarily intended to communicate to participants and beneficiaries?

  1. The compensation history of the plan's highly compensated employees
  2. The names of participants who have requested distributions
  3. The plan's funded status and the assets and liabilities used to measure it Correct answer.
  4. The investment returns of each individual participant's account

Explanation

The annual funding notice reports the plan's funding target attainment percentage and related asset and liability figures so participants can assess the plan's financial health. It does not report individual account returns, executive compensation, or distribution requesters. Those items belong to other disclosures or are not disclosable at all.

Question 30Pension Administration (source does not enumerate domains)

A plan's claims procedure denies a participant's disability benefit claim. Under the general ERISA claims regulation, what must the denial notice contain?

  1. A waiver of the participant's right to appeal
  2. Only a statement that the claim was reviewed and denied
  3. A list of other participants who received the same benefit
  4. The specific reasons for denial and a description of review procedures Correct answer.

Explanation

An adverse benefit determination must explain the specific reason for denial, reference the plan provisions relied upon, describe any additional material needed, and explain the appeal process, including time limits. A bare denial statement or an appeal waiver would violate the claims regulation. Other participants' information is irrelevant and confidential.

Question 31Pension Administration (source does not enumerate domains)

A participant who is fully vested terminates employment and requests a distribution of $6,000 from her account. Which statement about the plan's ability to force a distribution without her consent is accurate?

  1. The plan may never distribute without written participant consent
  2. The plan may force a distribution only after the participant reaches normal retirement age
  3. The plan may force a distribution because the balance is at or below the cash-out limit Correct answer.
  4. The plan may force a distribution only if the balance exceeds the cash-out limit

Explanation

Plans may involuntarily cash out vested account balances that do not exceed the statutory cash-out limit, and amounts above that threshold generally require consent. A $6,000 balance falls within the limit that permits a mandatory distribution, subject to the plan's terms and applicable rollover notice rules. Consent is not required at or below the limit, and normal retirement age is irrelevant here.

Question 32Pension Administration (source does not enumerate domains)

A plan sponsor wants to correct a failure to include an eligible employee in the plan for one plan year. Which correction approach is generally appropriate under the IRS correction program for this operational error?

  1. Reduce benefits for all other participants to offset the error
  2. Terminate the plan to eliminate the defect
  3. Retroactively include the employee and make corrective contributions for missed amounts Correct answer.
  4. Do nothing because the employee never requested enrollment

Explanation

Operational failures are generally corrected by putting affected participants in the position they would have occupied, which means retroactive inclusion and corrective contributions for missed deferrals, matches, or allocations. Ignoring the error leaves the plan out of compliance, and penalizing other participants is not a permissible remedy. Plan termination does not cure the underlying operational failure.

Question 33Pension Administration (source does not enumerate domains)

A participant asks how her pre-tax 401(k) elective deferrals are treated for federal income tax purposes in the year she defers them. Which statement is correct?

  1. The deferrals are excluded from both income tax and payroll taxes
  2. The deferrals are excluded from taxable wages but remain subject to Social Security and Medicare taxes Correct answer.
  3. The deferrals are included in her taxable wages for that year
  4. The deferrals are taxed only when she terminates employment

Explanation

Pre-tax elective deferrals reduce federal income tax withholding in the year of deferral but are still wages for FICA purposes, so Social Security and Medicare taxes apply. They are not exempt from payroll taxes, and taxation is not deferred until termination. Amounts become includible in income when distributed, subject to the distribution rules.

Question 34Pension Administration (source does not enumerate domains)

A plan fiduciary is reviewing the plan's recordkeeper fees and notices that revenue sharing offsets some plan expenses. What is the fiduciary's most appropriate action?

  1. Assume revenue sharing is prohibited in all circumstances
  2. Ignore the offsets because they reduce reported expenses
  3. Direct all revenue sharing to the employer's general account
  4. Determine whether the offsets are reasonable and allocated consistent with plan terms Correct answer.

Explanation

Fiduciaries must understand the total compensation paid from plan assets, including indirect compensation such as revenue sharing, and confirm that it is reasonable and applied according to plan documents and participant interests. Ignoring offsets or diverting them to the employer can create prohibited transaction or fiduciary issues. Revenue sharing is not categorically prohibited.

Question 35Pension Administration (source does not enumerate domains)

An employer adopts a safe harbor 401(k) design using a basic matching contribution. Which requirement must the employer satisfy to avoid the actual deferral percentage test?

  1. Provide the match to all eligible nonhighly compensated employees and give required notices Correct answer.
  2. Suspend matching contributions during the plan year
  3. Obtain IRS approval of each participant's deferral rate
  4. Limit deferrals to highly compensated employees only

Explanation

Safe harbor status under the basic match requires a specified matching contribution for eligible nonhighly compensated employees, fully vested contributions, and an annual notice describing the arrangement. The design exists to avoid ADP testing, so it cannot be limited to highly compensated employees. Individual IRS approvals and midyear suspensions are not part of the safe harbor requirements.

Question 36Pension Administration (source does not enumerate domains)

A participant's spouse is the beneficiary of her account. The participant later marries a different person and does not update the beneficiary designation. What does the plan administrator generally need to consider when processing a death benefit?

  1. The most recent beneficiary form controls regardless of marital status
  2. The plan must always pay the estate when a designation is stale
  3. Beneficiary designations are void after any marriage
  4. The spousal rights rules may require the current spouse's consent or entitlement Correct answer.

Explanation

In plans subject to the spousal consent rules, a spouse generally has rights to a survivor benefit unless a valid waiver and consent are obtained, so a stale designation cannot simply be honored. The plan must apply the applicable spousal rules and review the documentation. Designations are not automatically void, and estates are not the default payee.

Question 37Pension Administration (source does not enumerate domains)

A participant wants to take a hardship distribution from her 401(k) plan to purchase a primary residence. Which condition generally applies to such a distribution?

  1. The distribution may exceed the amount needed for the purchase
  2. The distribution requires no supporting documentation
  3. The distribution is limited to the amount necessary to satisfy the need, including taxes Correct answer.
  4. The distribution is permitted only after age 59 1/2

Explanation

Hardship distributions are limited to the amount needed to meet the financial need, including reasonably anticipated taxes, and the participant must represent that other resources are insufficient. Documentation of the need is generally required, and hardship withdrawals are available before age 59 1/2, though they may carry tax consequences. Amounts beyond the need are not permitted.

Question 38Pension Administration (source does not enumerate domains)

A plan sponsor is considering adding an automatic enrollment feature to its 401(k) plan. Which statement best describes how automatic enrollment generally works?

  1. Eligible employees must sign a consent form before any deferral begins
  2. Automatic enrollment applies only to highly compensated employees
  3. Eligible employees are enrolled at a default deferral rate unless they affirmatively elect otherwise Correct answer.
  4. Automatic enrollment eliminates the need for a plan document

Explanation

Automatic enrollment uses a default deferral rate and default investment for eligible employees who do not make an affirmative election, with required notices and an opportunity to opt out. It does not eliminate plan documentation, and it applies broadly to eligible employees rather than only highly compensated ones. Consent is presumed through the default mechanism rather than a signed form.

Question 39Pension Administration (source does not enumerate domains)

A participant in a defined benefit plan terminates with vested benefits and wants to know how the plan determines the lump-sum value of her accrued benefit. Which approach is generally used?

  1. The participant's total contributions with no interest
  2. The plan's total assets divided by the number of retirees
  3. The average account balance of all participants
  4. The actuarial present value of the accrued benefit using plan assumptions Correct answer.

Explanation

A lump-sum distribution from a defined benefit plan is generally the actuarial present value of the accrued benefit, calculated using the plan's specified mortality and interest assumptions and any applicable statutory rules. It is not a return of contributions or a share of aggregate plan assets. Averaging balances or dividing assets among retirees does not reflect the individual's promised benefit.

Question 40Pension Administration (source does not enumerate domains)

A plan administrator receives a request from a participant for a copy of the plan's summary plan description. What is the general rule regarding furnishing this document?

  1. The administrator may refuse because the document is confidential
  2. The administrator may charge a fee exceeding the cost of copying
  3. The administrator may require the participant to waive claims first
  4. The administrator must furnish the document within the timeframe required by ERISA Correct answer.

Explanation

Participants and beneficiaries are entitled to receive the summary plan description and other plan documents on request, and the administrator must respond within the period set by ERISA. The document is not confidential from participants, and any copying charge must be reasonable and limited to actual costs. Conditioning disclosure on a waiver is improper.

Question 41Pension Administration (source does not enumerate domains)

An employer maintains a defined contribution plan and wants to deduct its contribution for the tax year. Which limit generally caps the deductible amount for a profit-sharing plan?

  1. Ten percent of the employer's gross revenue
  2. One hundred percent of participant deferrals
  3. Twenty-five percent of eligible participants' compensation Correct answer.
  4. Fifty percent of the plan's trust earnings

Explanation

For a profit-sharing or stock bonus plan, the deduction limit is generally 25 percent of the aggregate compensation of eligible participants for the year, subject to statutory adjustments. It is not tied to gross revenue, trust earnings, or participant deferrals. Deferrals themselves are not employer contributions for this deduction calculation.

Question 42Pension Administration (source does not enumerate domains)

A participant is subject to the top-heavy rules because the plan is top-heavy for the year. What minimum contribution or benefit is generally required for non-key employees in a defined contribution plan?

  1. At least ten percent of compensation
  2. No minimum contribution is required
  3. A contribution equal to the highest key employee allocation
  4. At least three percent of compensation Correct answer.

Explanation

When a defined contribution plan is top-heavy, the employer generally must provide non-key employees with a minimum contribution of at least three percent of compensation, or the lesser rate if the top-heavy minimum is satisfied through other means. The requirement is not the highest key employee allocation, and it is not ten percent. Some minimum is indeed required.

Question 43Pension Administration (source does not enumerate domains)

A participant wants to borrow from her account in a qualified plan. Which statement about the maximum loan amount is generally accurate?

  1. The loan may equal the entire vested account balance without limit
  2. The loan is generally limited to the lesser of a dollar cap or a percentage of the vested balance Correct answer.
  3. The loan may exceed the vested balance if the participant pledges future contributions
  4. The loan amount is limited only by the plan's investment returns

Explanation

Plan loans are generally capped at the lesser of a statutory dollar amount or a percentage of the participant's vested account balance, with special rules for certain plan types. A loan cannot exceed the vested balance through a pledge of future contributions, and investment returns do not set the limit. The entire balance is not automatically available.

Question 44Pension Administration (source does not enumerate domains)

A plan sponsor is reviewing whether a plan is covered by ERISA's reporting requirements. Which plan is generally exempt from filing the annual Form 5500?

  1. A plan covering 500 participants
  2. A plan that uses a corporate trustee
  3. A small welfare plan meeting the regulatory exemption Correct answer.
  4. A plan with $1 million in assets

Explanation

Certain small welfare plans and other categories are exempt from annual reporting under regulatory exceptions, so size and asset thresholds alone do not determine filing status. Large participant counts, substantial assets, or the use of a corporate trustee do not create an exemption. The applicable exemption depends on the specific regulatory category.

Question 45Pension Administration (source does not enumerate domains)

A participant receives a distribution that is eligible for rollover and wants to avoid immediate taxation. Which action generally accomplishes that?

  1. Transferring the funds to a nonqualified annuity
  2. Spending the funds and reporting them as a loan
  3. Depositing the amount into an eligible retirement plan within the rollover period Correct answer.
  4. Holding the funds in a personal savings account indefinitely

Explanation

An eligible rollover distribution can be rolled into an eligible retirement plan or IRA within the applicable period to defer taxation, and a direct rollover avoids mandatory withholding. Holding the funds in a personal account or spending them generally makes the amount taxable, and a nonqualified annuity is not an eligible destination. Treating the distribution as a loan does not fit these facts.

Question 46Pension Administration (source does not enumerate domains)

A plan fiduciary is selecting a new investment option for the plan menu. Which practice best supports a prudent selection decision?

  1. Relying solely on the fund's advertising materials
  2. Documenting an evaluation of fees, risk, and suitability for the plan's participant population Correct answer.
  3. Choosing the option with the highest recent return without further review
  4. Selecting the option recommended by a participant who is not a fiduciary

Explanation

Prudence requires a documented process that considers fees, risk, diversification, and the needs of the participant population, not just recent performance. Chasing top returns, deferring to a non-fiduciary participant, or relying on marketing materials does not demonstrate a reasoned decision. Documentation supports both the decision and later review.

Question 47Pension Administration (source does not enumerate domains)

A participant in a money purchase pension plan asks whether her benefit is subject to the joint and survivor annuity rules. Which statement is generally accurate?

  1. Survivor annuity rules apply only to participants over age 65
  2. Money purchase plans are generally subject to the joint and survivor annuity rules Correct answer.
  3. Only defined benefit plans are subject to those rules
  4. Money purchase plans are never subject to survivor annuity requirements

Explanation

Money purchase pension plans are subject to the joint and survivor annuity requirements, including spousal consent rules for waivers, even though benefits are account-based. The rules are not limited to defined benefit plans or to participants past age 65. Treating money purchase plans as exempt misstates their treatment.

Question 48Pension Administration (source does not enumerate domains)

A participant claims she was improperly denied a benefit and wants to sue under ERISA. Which step must generally occur before the participant can bring the claim to court?

  1. The participant must exhaust the plan's internal claims and appeals procedures Correct answer.
  2. The participant must notify all other plan participants
  3. The participant must first obtain a court order compelling review
  4. The participant must waive the right to appeal after filing suit

Explanation

Courts generally require exhaustion of the plan's internal claims and appeals process before a participant may sue for benefits under ERISA. A court order to compel review is not a precondition, and a waiver of appeal rights would contradict the process. Informing other participants is not a prerequisite to suit.

Question 49Pension Administration (source does not enumerate domains)

A plan administrator is determining whether a worker is an employee eligible for the plan or an independent contractor. Which factor is most relevant to that classification analysis?

  1. Whether the worker has a written contract labeled as a consulting agreement
  2. The degree of control the employer exercises over the worker's work Correct answer.
  3. The worker's preference for contractor status
  4. The worker's age relative to other participants

Explanation

Worker classification turns on the facts of the relationship, with the degree of behavioral and financial control and the parties' relationship among the key factors. A label in a contract or the worker's own preference is not controlling. Age is irrelevant to the classification question.

Question 50Pension Administration (source does not enumerate domains)

A participant in a governmental plan asks whether ERISA's fiduciary and reporting provisions apply to her plan. Which statement is generally accurate?

  1. ERISA applies to governmental plans exactly as it does to private plans
  2. Governmental plans are covered only if they have more than 100 participants
  3. Governmental plans are generally exempt from ERISA's fiduciary and reporting requirements Correct answer.
  4. Governmental plans must file Form 5500 annually under ERISA

Explanation

Governmental plans are generally exempt from ERISA's fiduciary, reporting, and disclosure requirements, although they may be subject to comparable state or local rules and Internal Revenue Code qualification rules. They do not file ERISA Form 5500 reports, and participant count does not create ERISA coverage. The exemption applies regardless of plan size.