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Pamela Renquist owner of Advance Software Solutions Inc wants to install a stockbased retirement


Pamela Renquist, owner of Advance Software Solutions, Inc., wants to install a stock-based retirement

plan for herself and her employees. She has a young company that has averaged 5% a year growth since opening 5 years ago. Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutions, a stock bonus plan or an ESOP. You tell Pamela that:

A – both plans are identical except that an ESOP can be integrated with Social Security while a stock bonus plan cannot, making an ESOP less expensive to provide

B – only a stock bonus plan requires a put option, making it more difficult to retire employees when company cash is short

C – the ability to use the ESOP to borrow money with tax deductible dollars could be advantageous to a young and growing business

D – an ESOP will dilute company ownership, but the diversification requirements in a stock bonus plan prevent that from happening

E – only an ESOP can be used to fund a corporate buy-sell agreement and should be used if Pamela want to control business succession

Question 37

Acorn Booksellers is a small business interested in adopting a qualified retirement plan. The owner of Acorn wants to be able to choose from more than one financial institution when implementing the plan. Acorn’s owner also wants to determine such things as the vesting schedule, and the contribution or benefit formula. As a small business, Acorn wants to keep costs down. You recommend that Acorn use:

A – a master plan, because no determination letter is needed

B – a master plan because it would give Acorn choice in funding institution or medium while keeping installation and implementation costs low

C – a prototype plan because it would give Acorn choice in funding institution or medium while keeping installation and implementation costs low

D – a prototype plan because it gives small employers a tax credit for implementation

E – a small business plan because it is specifically designed for small businesses

Question 38

John creates an irrevocable trust into which he transfers income producing property. The trust provides income to his children for life; remainder to the grandchildren. John has appointed his wife, Sue, as the Trustee of the trust. Sue, as the Trustee, is given the power to apply trust income to purchase life insurance on John’s life. Who is responsible for the payment of the income tax liability attributed to the trust income?

A – Sue, as an individual

B – The children and grandchildren as trust beneficiaries

C – Sue, as the Trustee, and the children and grandchildren based upon the DNI calculation

D – John, as the Grantor of the trust

Question 39

Wheels, a small bike sales and repair shop, has ten employees, 5 full time and 5 part time. Walt Morgan, the owner, can’t afford to provide many employee benefits, but he does provide all employees three full-pay sick days a year. He funds the sick pay out of his general assets. He also provides his full time employees with basic health insurance that has a high deductible to keep costs down. Walt pays an annual premium for this insurance out of his general assets. Under ERISA:

A – Walt must provide employees with a Summary Plan Description

B – Walt qualifies for the small welfare plan exemption

C – Walt must file an annual report to the IRS

D – Walt must do either a or b

E – Walt must do both a and b

Question 40

Sam has a daughter, Mary, to whom he would like to leave the bulk of his estate. All but which provision in Sam’s will would generally affect how much Mary will receive under Sam’s will?

A – The attestation clause

B – The debts clause

C – The residuary clause

D – The tax clause