[ k RS] 401 k Rollover Specialist Mock Tests

I. Regulatory Framework and Fiduciary Standards

A. ERISA and Department of Labor (DOL) Oversight

History and purpose of the Employee Retirement Income Security Act (ERISA).

Definition of a "Fiduciary" under the SEC and DOL.

The "Five-Part Test" for fiduciary status and recent regulatory shifts.

Prohibited Transaction Exemptions (PTE), specifically focusing on PTE 2020-02.

Requirements for "Best Interest" advice regarding rollovers.

B. Internal Revenue Code (IRC) Compliance

Section 401(a) qualification requirements for plans.

Section 408 requirements for Individual Retirement Accounts (IRAs).

Distinctions between "Direct" and "Indirect" (60-day) rollovers.

One-rollover-per-year rule and its limitations.

C. SEC Regulation Best Interest (Reg BI)

The Care Obligation: Evaluating the costs and benefits of a rollover.

The Disclosure Obligation: Providing transparency regarding fees and conflicts of interest.

Conflict of Interest Obligation: Identifying and mitigating incentives to recommend a rollover.

II. Plan Types and Eligibility

A. Defined Contribution Plans

401(k) Plans (Traditional vs. Roth).

403(b) Plans (Tax-Sheltered Annuities).

457(b) Plans (Governmental vs. Non-governmental).

Profit Sharing and Money Purchase Pension Plans.

B. IRA Variations

Traditional IRA vs. Roth IRA.

SEP IRAs and SIMPLE IRAs.

Inherited (Beneficiary) IRAs and the SECURE Act 2.0 implications.

C. Distribution Triggering Events

Separation from service (termination, resignation, retirement).

Plan termination by the employer.

In-service withdrawal provisions (Age 59 ½).

Hardship withdrawals vs. distributable events.

III. The Rollover Decision Matrix

A. Comparative Analysis: Plan vs. IRA

Investment Options: Institutional fund classes vs. retail brokerage flexibility.

Fees and Expenses: Administrative costs, recordkeeping fees, and investment management fees (12b-1 fees).

Services: Availability of professional management, financial planning, and educational tools.

Creditor Protection: ERISA federal protection vs. state-level IRA protection.

B. Distribution Options

Leaving assets in the former employer’s plan.

Rolling assets to a new employer’s plan.

Rolling assets to an IRA (Traditional or Roth).

Lump-sum cash distribution (Tax consequences and penalties).

C. Special Asset Considerations

Net Unrealized Appreciation (NUA): Handling highly appreciated employer stock.

After-Tax Contributions: Tracking basis and the "pro-rata" rule.

Plan Loans: Treatment of outstanding loan balances upon separation (Loan offsets).

IV. Technical Execution and Documentation

A. Direct Rollovers (Trustee-to-Trustee)

Paperwork requirements: Letters of Acceptance (LOA).

Tax reporting: Form 1099-R and Form 5498 coding.

Avoiding the mandatory 20% federal income tax withholding.

B. Indirect Rollovers (60-Day Rule)

The mechanics of constructive receipt.

Withholding requirements and the "make-whole" out-of-pocket obligation.

Procedures for late rollover waivers and self-certification.

C. Roth Conversions and Re-characterizations

Converting traditional 401(k) assets to a Roth IRA.

Taxation of the conversion amount.

The elimination of re-characterization for conversions.

V. Ongoing Compliance and Client Communication

A. Disclosure Requirements

Documentation of the rationale for the rollover recommendation.

Fee comparison spreadsheets and standardized disclosure forms.

Disclosing the impact of lost features (e.g., the ability to take plan loans).

B. Prohibited Transactions

Identifying "Self-Dealing" (fiduciaries benefiting from their own advice).

The "Reasonable Compensation" standard.

Corrective actions for inadvertent prohibited transactions.

C. Professional Ethics

NAPA Code of Professional Conduct.

Confidentiality and Data Security (Gramm-Leach-Bliley Act basics).

Duty of loyalty to the participant/beneficiary.