dc-3 practice exam

DC-3 Practice Exam

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DC-3 Practice Exam 2

INFORMATION

This is a practice examination for the DC-3 course. The actual examination will include 55

multiple choice questions for which candidates will have 2½ hours to complete.

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DC-3 Practice Exam

Question 1

All of the following are advantages of adopting an ESOP, EXCEPT:

A. Motivates employees

B. Shares company growth more directly with employees

C. Common plan type in the marketplace that is simple to administer

D. Used for corporate financing (e.g., a leveraged ESOP)

E. Creates a market for the company shares

Question 2

All of the following contribution types are always included in the average benefit test, EXCEPT:

A. Pre-tax elective contributions

B. Designated Roth contributions

C. Nonelective contributions in a safe harbor plan

D. Basic matching contributions in a safe harbor 401(k) plan

E. Employer profit sharing contributions made to a plan maintained by a QSLOB other than

the one being tested

Question 3

All of the following information must be provided before distributing benefits to a plan participant,

EXCEPT:

A. Explanation of the different forms of payment available

B. Information about the right to delay distribution

C. List of approved plan representatives for QJSA notice

D. Explanation of direct rollover options if distribution is in excess of $200

E. Explanation of the relative values of each optional form of benefit


Question 4

All of the following are always disqualified persons, EXCEPT:

A. An HCE

B. A party-in-interest

C. The Plan Administrator

D. An owner owning at least 50% of an employer

E. A person providing services to the plan

Question 5

All of the following statements regarding controlled groups are TRUE, EXCEPT:

A. Employees of all controlled group members are taken into account when applying

nondiscrimination testing.

B. Contributions made by controlled group members to separate plans are deducted by the

member having made the contribution.

C. Top-heavy testing is performed as if all controlled group members are a single employer.

D. Annual additions testing is performed as if all controlled group members are a single

employer.

E. An employee's service for eligibility purposes is determined based only on the service

the employee earned with the controlled group member that sponsors the plan.

Question 6

All of the following statements regarding multiple employer plans are TRUE, EXCEPT:

A. Top-heavy testing is applied separately to each unrelated employer in a multiple

employer plan.

B. A multiple employer plan is maintained pursuant to a collective bargaining agreement.

C. Coverage rules under a multiple employer plan must be met on an employer-by-

employer basis as though each unrelated employer maintains a separate plan.

D. The deduction limits are applied separately to each unrelated employer in a multiple

employer plan.

E. The nondiscrimination requirements are applied separately to each unrelated employer

in a multiple employer plan.


Question 7

All of the following statements regarding a leveraged ESOP are TRUE, EXCEPT:

A. The ESOP may delay distributions until the loan is completely repaid.

B. Through a leveraged ESOP the employer may have access to additional funds, such as

those needed for expansion, on a tax-favored basis.

C. When an ESOP borrows to purchase stock the bank may require additional security for

the loan other than the stock that is purchased with its proceeds.

D. Dividends paid on unallocated stock held in the suspense account may be used to make

repayments on that loan.

E. The ESOP loan must be for the primary benefit of the participants and beneficiaries.

Question 8

All of the following statements regarding the average benefit test are TRUE, EXCEPT:

A. The plan must satisfy the nondiscriminatory classification test.

B. Specified job categories are considered a reasonable classification.

C. The plan must satisfy the average benefit percentage test.

D. A classification is nondiscriminatory if it satisfies the safe harbor percentage test.

E. Geographic location is not considered a reasonable classification.

Question 9

All of the following statements regarding life insurance in defined contribution plans are TRUE,

EXCEPT:

A. A plan may allow for the purchase of whole life insurance if the premiums are less than

50% of the cumulative contributions and forfeitures allocated to the individual

participant’s account.

B. Universal life insurance is considered term insurance for purposes of the percentage

limitations of the incidental benefit test.

C. The incidental life insurance limit does not apply to premiums that are paid with

contributions that have accumulated in the trust for at least two years In a profit sharing

plan.

D. A participant’s death benefit in a defined contribution plan will be the greater of the face

value of the life insurance policy or the participant’s vested account balance.

E. Insurance policies held in a participant’s account may not continue to be held in the plan

after the participant retires.


Question 10

All of the following statements regarding the employer deduction in a short plan year or short

taxable year are TRUE, EXCEPT:

A. A short taxable year may affect the computation of the employer's deduction.

B. In the case of a short taxable year, the deduction limit is applied to aggregate participant

compensation paid for the short period.

C. A short taxable year results in a prorated compensation dollar limit.

D. A short taxable year occurs when the employer changes the plan year.

E. A short plan year does not directly affect the deduction limit because the limit is based

on participant compensation for the employer's taxable year.

Question 11

Which of the following forms of compensation is/are included under IRC §415(c)(3)?

I. Qualified moving expense reimbursements

II. Elective deferral contributions under a 401(k) plan

III. Workers compensation

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III


Question 12

Which of the following statements regarding otherwise excludable employees for coverage

testing is/are TRUE?

I. It is permissible to use the statutory entry dates to determine otherwise excludable.

II. A participant who has never met the year of service requirement may not be considered

otherwise excludable.

III. It is permissible to use the plan’s entry dates to determine otherwise excludable.

A. II only

B. III only

C. I and II only

D. I and III only

E. I, II and III

Question 13

Which of the following statements regarding compensation under IRC §414(s) is/are TRUE?

I. The definition of compensation will not be considered discriminatory merely because it

includes elective deferrals to an IRC §403(b) plan.

II. The definition of compensation will not be considered discriminatory merely because it

excludes compensation which was earned prior to the date an employee becomes a participant

in the plan.

III. The definition of compensation will not be considered discriminatory merely because it

excludes compensation that applies only to HCEs.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III


Question 14

Which of the following requirements under the ASPPA Code of Professional Conduct is/are

necessary in order for an ASPPA member to perform professional services involving an actual

or potential conflict of interest?

I. There must be full disclosure to the client of any actual or potential conflicts of interest.

II. There must be full disclosure to the client of a significant conflict that may impair the

member’s ability to act fairly in that situation.

III. The member’s client must expressly agree to the performance of the services by the

member.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III

Question 15

Which of the following is/are corrections available when a plan does not satisfy

nondiscrimination requirements under IRC§401(a)(4)?

I. Adopt a plan amendment to correct the violation within 9½ months following the end of the

plan year

II. Provide selected NHCEs with additional benefits

III. Cut back HCE benefits

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III


Question 16

All of the following statements regarding the QSLOB administrative scrutiny test are TRUE,

EXCEPT:

A. The QSLOB may satisfy the test by meeting one of the six safe harbor tests.

B. All QSLOBs of the employer must satisfy the same safe harbor test.

C. The QSLOB may satisfy the test by applying to the IRS for a determination.

D. The different industries safe harbor is satisfied if the QSLOB is in a separate industry

than every other QSLOB of the employer.

E. A QSLOB may satisfy the test by meeting the mergers and acquisitions safe harbor.

Question 17

All of the following statements regarding the gateway contribution test are TRUE, EXCEPT:

A. Matching contributions made by the employer may be used to satisfy the gateway

contribution requirement.

B. A participant who enters mid-year may have their minimum gateway contribution based

on compensation from their date of participation.

C. Only employees who benefit under the plan for coverage testing purposes are required

to receive the gateway contribution.

D. The lowest permissible allocation for any NHCE who benefits under the plan is one-third

of the highest allocation rate for any HCE who benefits under the plan.

E. Plans that provide an allocation to all eligible NHCEs that is at least 5% of IRC §415

compensation will automatically satisfy the gateway contribution test.

Question 18

All of the following statements regarding fiduciary responsibility are TRUE, EXCEPT:

A. The fiduciary has a duty to act in a manner consistent with the applicable ERISA

standard.

B. Every fiduciary and every person who handles plan funds must be bonded.

C. The responsible fiduciaries must take reasonable prudent steps to secure collection of

amounts owed to the plan.

D. A fiduciary must make sure plan expenses are reasonable.

E. A fiduciary must carry out his or her duties solely in the interest of the plan sponsor.


Question 19

All of the following statements regarding S Corporations are TRUE, EXCEPT:

A. An S Corporation may have more than one class of stock.

B. An S Corporation is a corporation that has made an election to be taxed as a

partnership.

C. An S Corporation can have no more than 100 shareholders.

D. An ESOP may be a shareholder of an S Corporation.

E. Shareholders in an S Corporation may be paid compensation as an employee, subject to

W-2 reporting.

Question 20

All of the following statements regarding ownership attribution under IRC §318 as applicable to

ASGs are TRUE, EXCEPT:

A. A grandchild is attributed a grandparent’s ownership in a business.

B. A parent is attributed a child’s ownership in a business.

C. A child is attributed a parent’s ownership in a business.

D. A grandparent is attributed a grandchild’s ownership in a business.

E. A wife is attributed her husband’s ownership in a business.

Question 21

All of the following statements regarding cross-tested defined contribution plans are TRUE,

EXCEPT:

A. Age and compensation are factors used in testing for nondiscrimination.

B. Plan year compensation may be used when testing allocations under the current year

method.

C. The testing age is usually the plan’s normal retirement age.

D. Average annual compensation must be used when testing allocations under the

accrued-to-date method.

E. Each rate group includes only one HCE.


Question 22

All of the following are considered covered service providers for purposes of ERISA §408(b)(2),

EXCEPT:

A. An investment advisor receiving revenue sharing from the plan assets totaling $3,000

per quarter

B. A third party administrator billing the plan directly an annual administration fee of $1,500

C. An actuary providing one-time consulting on a project for $500 paid by the plan

D. A recordkeeper collecting an asset charge of 10 basis points annually, equating to

$10,000 paid from the plan

E. An investment advisor billing the plan directly $4,000 for a vendor search

Question 23

All of the following must be tested as a benefits, rights and feature, EXCEPT:

A. Optional forms of benefits

B. Different investment options to two groups of participants

C. Rate of matching contributions based on years of service

D. Eligibility to make rollovers before satisfying the plan’s eligibility requirements

E. Different profit sharing allocation formulas for two groups of participants

Question 24

All of the following persons or entities are generally not considered fiduciaries, EXCEPT:

A. Investment manager hired by the plan sponsor

B. Custodian of plan assets without discretionary investment authority

C. Plan’s accountant

D. Recordkeeper hired by the sponsor to maintain participant account balances

E. Insurance company providing the investment contract for plan assets


Question 25

Which of the following statements regarding ASPPA’s Code of Professional Conduct is/are

TRUE?

I. An ASPPA member may perform professional services only when qualified to do so based on

education, training and experience.

II. At a client’s written direction, an ASPPA member may perform professional services that

mislead, violate or evade the law.

III. An ASPPA member must disclose to a client all sources of compensation received for

services provided to that client by the ASPPA member.

A. II only

B. III only

C. I and II only

D. I and III only

E. I, II and III

Question 26

Which of the following statements regarding aggregation, disaggregation and restructuring of

plans for nondiscrimination testing is/are TRUE?

I. Permissive aggregation is done at the election of the employer.

II. If two or more plans are permissively aggregated for coverage testing, they may be

disaggregated for nondiscrimination testing.

III. If restructuring is used, every employee of the employer must be included in only one

component plan.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III


Question 27

Which of the following statements regarding leased employees under a multiple employer plan

is/are TRUE?

I. Common ownership must be established between the recipient and the leasing organization

to allow the leased employee to participate.

II. A leased employee's years of service with all participating employers are aggregated for

determining eligibility under IRC §401(a).

III. Contributions from all participating employers are aggregated for computing the leased

employee's annual addition under IRC §415.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Question 28

Which of the following statements regarding prohibited transactions is/are TRUE?

I. An excise tax is imposed on the disqualified person who engages in a prohibited transaction.

II. A prohibited transaction is corrected by undoing the transaction to the extent possible and

placing the plan in the financial position it was in prior to the transaction.

III. An additional tax of 100% is imposed if the prohibited transaction is not corrected within a

certain time period after notification by the IRS.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III


Question 29

Based on the following information, determine the number of shares in the ESOP that are

currently available for diversification:

Participant A’s account contains 20,000 shares valued at $5 per share.

Participant A is age 58 with 25 years of participation.

In the last two years Participant A diversified a total of 4,000 shares valued at $2 per

share.

A. 1,000

B. 2,000

C. 3,400

D. 3,800

E. 5,000

Question 30

Based on the following information, determine the self-employed individual’s earned income

under the profit sharing plan:

Schedule C income $120,000

Self-employment tax $6,000

Contributions for employees $12,000

Contribution for self-employed individual $5,000

A. $97,000

B. $100,000

C. $102,000

D. $105,000

E. $120,000


Question 31

Based on the following information, determine the EBAR based on cross-testing contributions

as benefits:

Annual Compensation $160,000

Allocation $40,000

Actuarial Factor .008784

A. 2.50%

B. 2.85%

C. 8.78%

D. 25.00%

E. 28.46%

Question 32

Based on the following information, determine the participant's benefit percentage used in the

average benefit test portion of the general test:

Benefit percentage derived from the money purchase contribution is 5.0%.

Benefit percentage derived from forfeitures allocated in the money purchase plan is

1.5%.

Benefit percentage derived from a profit sharing contribution in the employer's separate

profit sharing plan is 3.0%.

Benefit percentage derived from an elective deferral in the employer's separate 401(k)

plan is 10.0%.

Benefit percentage derived from a matching contribution in the employer's separate

401(k) plan is 4.0%.

A. 5.0%

B. 6.5%

C. 9.5%

D. 13.5%

E. 23.5%


Question 33

Based on the following information, determine which of the following corporations is/are

members of a controlled group:

None of the individuals are related.

Employee Corporation 1 Corporation 2 Corporation 3

W 60% 40% 80%

X 20% 15% 20%

Y 20% 5% 0%

Z 0% 40% 0%

A. None

B. Corporation 1 and Corporation 2 only

C. Corporation 1 and Corporation 3 only

D. Corporation 2 and Corporation 3 only

E. Corporation 1, Corporation 2 and Corporation 3

Question 34

Based on the following information, determine the number of rate groups for purposes of the

nondiscrimination test under IRC §401(a)(4):

Benefit %

HCE 1 5.25

HCE 2 2.50

HCE 3 15.50

HCE 4 2.50

HCE 5 5.25

A. 1

B. 2

C. 3

D. 4

E. 5


Question 35

All of the following statements regarding fiduciary liability are TRUE, EXCEPT:

A. A fiduciary may avoid liability for a breach committed by another fiduciary by resigning

as a plan fiduciary.

B. A fiduciary may be required to pay the plan any profits earned by the fiduciary through

the use of plan assets involved in a breach.

C. A fiduciary that knowingly conceals or does not make a reasonable effort to remedy a

breach may be liable for the breach.

D. A fiduciary is personally liable for any breach that he or she directly commits.

E. ERISA §404(c) can significantly limit fiduciary liability resulting from a participant’s

investment direction of the assets allocated to his or her account.

Question 36

All of the following statements regarding coverage testing when an acquisition takes place are

TRUE, EXCEPT:

A. A plan that satisfies coverage at the time of an acquisition of a related group member is

deemed to meet coverage during a transition period after the acquisition.

B. The transition period for satisfying coverage testing begins on the date of the

transaction.

C. The transition period for satisfying coverage testing ends on the first day of the next plan

year beginning after the transactions.

D. The transition period applies if there is no significant change in coverage during the

transition period, other than change from acquisition.

E. The plan sponsor may elect to apply the coverage tests during the transition period.

Question 37

All of the following statements regarding IRC §1042 transactions are TRUE, EXCEPT:

A. Shareholders who sell their interest to the ESOP may be able to defer the gain for a

significant period of time if the sponsoring company is a C corporation.

B. Shareholders must own at least 10% of the stock to take advantage of this election.

C. Eligible shareholders may sell stock to the plan and reinvest the proceeds in equity or

debt instruments.

D. IRC §1042 transactions are valuable to business owners that want to divest their stock.

E. The shareholder must reinvest the proceeds of the sale of stock to the ESOP in qualified

replacement property.


Question 38

All of the following statements regarding service organizations and FSOs are TRUE, EXCEPT:

A. An FSO may be any type of entity, such as a corporation or a partnership.

B. The organization must have an ownership interest of at least 5% in the FSO to be

treated as an A-organization.

C. Professional services include services provided by accountants, doctors, and

veterinarians.

D. A professional service corporation is a corporation that is organized for the primary

purpose of providing professional services

E. An FSO must be a service organization.

Question 39

All of the following statements regarding distributions from an ESOP are TRUE, EXCEPT:

A. Generally, ESOP participants have the right to demand that their entire account be

distributed in the form of employer securities.

B. A put option permits the holder of the stock to demand that the company buy back the

stock at the current fair market value.

C. The ESOP does not need to distribute stock when the company by laws limit stock

ownership to the ESOP and employees of the company.

D. For separations due to retirement the participant must have the right to elect a

distribution within one year after the fifth plan year following their separation.

E. S corporations are exempt from distributing benefits in the form of stock.

Question 40

All of the following statements regarding the controlled group rules are TRUE, EXCEPT:

A. Two or more US companies that are owned 80% or more by a common parent are a

controlled group.

B. A common owner must be an individual, a trust or an estate in a brother-sister controlled

group.

C. A common owner must have at least some ownership in each business being tested in a

brother-sister controlled group.

D. A brother sister controlled group exists if the same five or fewer common owners satisfy

an 80% common control test and a 50% effective control test.

E. U.S. companies owned by a common foreign parent are excluded from being part of a

controlled group for qualified plan purposes


Question 41

Which of the following statements regarding the definition of management functions in ASGs

is/are TRUE?

I. The IRC provides a strict set of what are considered management functions.

II. Management functions include activities that involve performing daily business operations

such as the hiring and firing of personnel.

III. Management functions include business planning activities.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Question 42

Which of the following statements regarding the calculation of the prohibited transaction excise

tax is/are TRUE?

I. In the case of a loan the amount involved is the principal amount of the loan.

II. In the case of unreasonable compensation the amount involved is the excess compensation

paid by the plan.

III. In the case of the sale of property, the amount involved is the greater of the fair market value

of the property or the amount paid for the property.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III


Question 43

Which of the following is/are correction methods that a plan may use if failing coverage testing?

I. Amend plan to include a group of otherwise excludable NHCEs

II. Include fail safe language in the plan document that will list specific procedures to follow if the

plan fails the coverage tests

III. Include employees who terminated during the plan year, in reverse order of their date of

termination

A. I only

B. II only

C. I and II only

D. II and III only

E. I, II and III

Question 44

Which of the following statements regarding the consequences for violating the plan sponsor-

level fee disclosure requirements is/are TRUE?

I. The service provider may have to return to the plan any fees paid.

II. The responsible plan fiduciary can be liable for a breach of fiduciary duty.

III. The service provider will be liable for a 15% excise tax on the amount of fees charged.

A. I only

B. III only

C. I and II only

D. II and III only

E. I, II and III


Question 45

Which of the following statements regarding QSLOBs is/are TRUE?

I. To be a QSLOB the employer must be divided up into at least two separate lines of business.

II. The plan may perform top-heavy testing separately for each QSLOB.

III. The separate line of business must include at least 50 employees on every day of the testing

year.

A. I only

B. II only

C. I and III only

D. II and III only

E. I, II and III

Question 46

All of the following statements regarding ASGs are TRUE, EXCEPT:

A. ASG members are treated as separate employers for top-heavy purposes.

B. All ASG members are treated as a single employer when identifying HCEs.

C. All ASG members are treated as a single employer when determining IRC §415 limits.

D. Service with all ASG members is considered for vesting purposes.

E. Service with all ASG members is considered for eligibility purposes.

Question 47

All of the following statements regarding life insurance in defined contribution plans are TRUE,

EXCEPT:

A. The proceeds of a participant’s life insurance policy may be made payable to the plan or

the participant’s beneficiary depending on how the policy is set up.

B. Net insurance proceeds paid to a beneficiary are excludable from gross income.

C. The premium is the fee paid each year to the insurance company.

D. The annual term cost (PS 58 cost) of insurance is reported each year on Form 1099-R

as taxable to the participant.

E. The reserve accumulation is used to offset administrative fees associated with the

termination of the policy upon a participant’s death.


Question 48

All of the following statements regarding controlled group attribution rules under IRC §1563

when applied to adult children (i.e., age 21 or older) are TRUE, EXCEPT:

A. A parent is attributed ownership of a business held by the child only if the parent owns

more than 50% of that business

B. An adult child is attributed ownership of a business held by a parent only if the adult child

owns more than 50% of that business.

C. Both direct ownership and stock attribution apply in determining ownership interest in a

business.

D. A parent is attributed ownership of all businesses of the adult child if attribution

requirements are satisfied with regard to at least one of the businesses.

E. Stock attribution rules are different for determining controlled groups than they are for

determining ASGs.

Question 49

All of the following statements regarding permissive aggregation for coverage testing are TRUE,

EXCEPT:

A. Two plans may not be permissively aggregated if the plans could pass coverage testing

separately.

B. Plans permissively aggregated for coverage testing purposes to pass the ratio

percentage test must also be aggregated for nondiscrimination testing.

C. Plans with different plan years may not be permissively aggregated.

D. When an employer maintains two plans they may be aggregated together and treated as

a single plan for coverage testing purposes.

E. Two plans tested separately under the mandatory disaggregation rules cannot be

permissively aggregated to perform the ratio percentage test.


Question 50

All of the following statements regarding ESOPs are TRUE, EXCEPT:

A. Permitted disparity may not be used when allocating ESOP contributions.

B. An ESOP may not include a 401(k) elective deferral feature.

C. In some cases, the tax deductible contribution to a leveraged ESOP may exceed the

25% deductible limit.

D. The plan may pay no commissions on the sale of employer stock.

E. The plan sponsor of a leveraged ESOP may be able to deduct the amount of loan

interest.

Question 51

All of the following statements regarding leased employees under IRC §414(n) are TRUE,

EXCEPT:

A. A leased employee must perform services under an agreement between the recipient

employer and the leasing organization.

B. A leased employee’s services must be under the primary control or direction of the

recipient employer.

C. A leased employee must perform services for the recipient employer on a substantially

full-time basis for at least one year.

D. The leased employee must be a common law employee of the leasing organization.

E. Each leased employee must be covered by a safe harbor plan maintained by the leasing

organization.

Question 52

All of the following are exemptions from the prohibited transaction rules, EXCEPT:

A. Purchase by the plan of an office building in which the plan sponsor resides

B. Loans by the sponsoring employer to an ESOP

C. Purchase of life insurance where the insurer is the plan sponsor

D. Loan to a participant

E. Investing in qualified employer securities


Question 53

All of the following are steps that a fiduciary should perform when choosing a service provider,

EXCEPT:

A. Evaluate service provider’s fees

B. Evaluate service provider’s expertise and value of services

C. Solicit bids from multiple service providers

D. Understand whether service provider is providing ministerial or fiduciary functions

E. Automatically disregard any service provider if they have been involved in recent

litigation

Question 54

All of the following are prohibited transactions, EXCEPT:

A. A fully secured $50,000 loan by the plan to the sponsoring employer bearing interest at

the current prime rate plus 1%

B. The contribution of securities, rather than cash, to a profit sharing plan as the annual

contribution

C. The purchase of a fleet of trucks by the plan, which the sponsoring employer will lease

and use to make deliveries

D. The purchase of non-employer securities from a plan participant

E. Accepting real estate for a participant loan

Question 55

All of the following are standards for fiduciary conduct, EXCEPT:

A. Exclusive purpose rule

B. Excess benefit plan rule

C. Prudence standard

D. Diversification of investments standard

E. Compliance with plan documents


SHORT ANSWER KEY

Question # Answer Question # Answer

1 C 29 B

2 E 30 B

3 C 31 E

4 B 32 E

5 E 33 C

6 B 34 C

7 C 35 A

8 E 36 C

9 D 37 B

10 D 38 B

11 B 39 D

12 D 40 E

13 E 41 D

14 E 42 D

15 C 43 E

16 B 44 E

17 A 45 C

18 E 46 A

19 A 47 E

20 A 48 D

21 E 49 A

22 C 50 B

23 E 51 E

24 A 52 A

25 D 53 E

26 C 54 B

27 D 55 B

28 E

END SHORT ANSWER KEY


ANSWER KEY WITH EXPLANATIONS

1. C ESOPs are not common nor are they simple to administer.

2. E An employer may elect to test coverage separately for its qualified separate lines

of business (QSLOBs). When applying the coverage tests to a plan maintained

by a QSLOB, all employees not included in that QSLOB are excludable

employees. Thus, employer profit sharing contributions made to a plan

maintained by a QSLOB other than the one being tested are not included in the

average benefits test.

3. C There is no requirement that a plan provide a listing of approved plan

representatives when processing a distribution from a plan.

4. B A party-in-interest is not always a disqualified person.

5. E The employee's service with all controlled group members is aggregated to

determine whether eligibility service requirements are satisfied for a plan

maintained by a controlled group member.

6. B A multiemployer plan is maintained pursuant to a collective bargaining

agreement.

7. C When an ESOP borrows to purchase stock, the only security for the loan is the stock that is purchased with its proceeds.

8. E Reasonable classifications may include geographic locations.

9. D A participant’s death benefit in a defined contribution plan will be the SUM of the

face value of the life insurance policy AND the participant’s vested account

balance.

10. D A short tax year occurs when the employer changes its tax year not the plan year.

11. B Qualified moving expense reimbursements and workers compensation are

excluded from IRC §415 compensation.

12. D II is FALSE. A participant who has never met the year of service requirement

MAY be considered otherwise excludable.

13. E All three statements are true.



15. C An amendment may not cut back participation or benefits to HCEs as that would

violate IRC §411(d)(6).

16. B Each QSLOB may satisfy a different safe harbor test.

17. A Matching contributions made by the employer may NOT be used to satisfy the

gateway contribution requirement. Matching contributions are tested separately

under IRC §401(m) which may not be aggregated with a profit sharing

contribution to satisfy IRC §401(a)(4).

18. E A fiduciary must carry out his or her duties soley in the interest of the plan

participants and beneficiares.

19. A An S Corporation is limited to one class of stock.

20. A A grandparent’s ownership interest is not attributed under IRC §318 to that

individual’s grandchild. In contrast, a grandchild’s ownership interest is attributed

under IRC §318 to that individual’s grandparent.

21. E An HCE's rate group includes all employees (HCEs and NHCEs) who have a rate

(either allocation rate or EBAR, whichever is being used in the test) equal to or

greater than the HCE's rate. Thus, rate groups may include more than one HCE.

22. C A covered service provider is defined as a service provider that enters into an

arrangement with a covered plan and reasonably expects to receive $1,000 or

more in compensation for services.

23. E Different profit sharing allocation formulas to two groups of participants are

required to be tested under coverage and nondiscrimination testing but not as a

benefit right or feature.

24. A The investment manager hired by the plan sponsor is a plan fiduciary.

25. D An ASPPA member may NOT perform professional services that mislead, violate

or evade the law.

26. C If two or more plans are permissively aggregated for coverage testing, they must

also be aggregated for nondiscrimination testing.

27. D A multiple employer plan does not require common ownership between the

recipient and the leasing organization.



29. B The participant is eligible to diversify 2,000 shares ((20,000 + 4,000) * .25 -

4,000).

30. B $100,000 = $120,000 - $12,000 - 1/2/ $6,000 - $5,000. A self-employed

individual’s earned income under a profit sharing plan equals Schedule C Income

less contributions for employees, less half of the self-employment tax, less

contribution for self-employed individual.

31. E 28.46% = $40,000 / (.008784 * $160,000). See Example 6-3 of publication.

32. E It is the sum of money purchase, money purchase forfeitures, profit sharing,

deferrals, and matching contributions.

33. C A brother-sister controlled group exists when the same five or fewer owners have

both common control (own at least 80%) and effective control (identical

ownership is at least 50%). Employees W and X are the only owners of all three

companies so only their ownership is considered. Combined they own 80% of 1,

55% of 2 and 100% of 3. With at least 80% ownership of Corporations 1 and 3,

the common control test is satisfied. The effective control (identical ownership) for

Employee W is 60%. The effective control (identical ownership) for Employee X is

20%. The sum of these is 80% so the effective control test is satisfied.

Corporations 1 and 3 are members of a brother-sister controlled group.

34. C There are three different rates groups as you need one rate group for each HCE

who is benefitting at a different rate.

35. A A fiduciary does NOT avoid liability for a breach committed by another fiduciary

by simply resigning as a plan fiduciary.

36. C The transition period for satisfying coverage testing ends on the last day of the

next plan year beginning after the transactions.

37. B Shareholders must own at least 30% of the stock to take advantage of the IRC

§1042 election.

38. B An A-organization must have ownership in the FSO but there is no minimum

ownership amount.

39. D For separations due to retirement the distribution of the participant must have the

right to elect a distribution within one year after the close of the plan year in which

he seperated for retirement.

40. E Companies owned by a foreign parent are included in determing controlled group

members for qualfied plan purposes.


41. D The IRC does NOT provides a strict set of what are considered management

functions.

42. D I is FALSE. In the case of a loan the amount involved is the greater of the fair

market interest rate or the interest paid for the use of the money.

43. E All are acceptable methods to correct a coverage testing failure.

44. E All statements are true.

45. C The plan may not perform top-heavy testing separately for each QSLOB.

46. A ASG members are treated as a single employer for top-heavy purposes. Top-

heavy determination is performed by including ALL plans maintained by members

of the ASG.

47. E If the insured dies, the reserve customarily is used to pay part of the face amount.

48. D A parent is NOT attributed ownership of all businesses of the adult child if

attribution requirements are satisfied with regard to at least one of the

businesses. A parent is only attributed ownership of the businesses of the adult

child if attribution requirements are satisfied for that business

49. A Two plans may be permissively aggregated even if the plans could pass

coverage testing separately

50. B An ESOP may include a 401(k) elective deferral feature. This is commonly

referred to as a KSOP.

51. E Leased employees do not need to be covered by a safe harbor plan maintained

by the leasing organization.

52. A Purchasing an office building for the plan sponsor’s business is not an exemption

to the prohibited transaction rules.

53. E All of the following are steps that a fiduciary should perform when choosing a

service provider, EXCEPT:

54. B An employer is permitted to contribute securities as an employer contribution

instead of cash.

55. B The excess benefit plan rule is not a standard for fiduciary conduct.

END ANSWER KEY WITH EXPLANATION

dc-3 practice exam

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