CLU Qualified Plans and Retirement Practice Questions

Correct answer: C. 7.0%, because the HCE average may exceed the NHCE average by 2 percentage points

The ADP test allows the HCE average to be the greater of 1.25 times the NHCE average, or the lesser of 2 times the NHCE average and the NHCE average plus 2 points. With NHCE at 5%, 1.25 x 5% = 6.25% and the lesser of 10% and 7% is 7%, so 7.0% is the maximum.

• AA. The test permits the HCE average to exceed the NHCE average.
• BB. 1.25 times applies only when the NHCE average is above 8%; here the plus-2 point test gives a higher limit.
• CC. Correct. With NHCE between 2% and 8%, the HCE limit is NHCE plus 2 percentage points.
• DD. Twice the NHCE average applies only when NHCE is 2% or less; the plus-2 rule is the lesser limit here.

• Source: IRS: 401(k) plan fix-it guide, ADP and ACP nondiscrimination tests, accessed October 2026

Correct answer: A. The costs (premiums) and/or the benefits (cash value and death benefit) of the policy, split between the employer and employee according to a written agreement

Split-dollar arrangements involve an employer and employee (or sometimes two parties in an estate planning context) sharing the economics of a life insurance policy. Typically the premium cost and the eventual cash value/death benefit. Under a written agreement that specifies each party's rights and taxed under either the economic benefit regime or the loan regime, depending on how the arrangement is structured. Choices B, C, and D each mischaracterize what is actually being split.

• AA. Correct. In a split-dollar arrangement, the employer and employee share the costs (premiums) and/or the benefits (cash value and death benefit) of the policy according to a written agreement between them.
• BB. Split-dollar involves sharing actual costs and/or benefits of the policy itself; an arrangement where the employer contributes nothing and has no rights in the benefits is not a sharing arrangement at all.
• CC. Split-dollar concerns a life insurance policy's costs and benefits; it has no connection to the employer's general commercial liability coverage.
• DD. This describes straightforward compensation with outright employee ownership, not a split-dollar arrangement, which depends on a written agreement under which the employer and employee share the policy's costs and/or benefits.

• Source: 26 CFR § 1.61-22, accessed October 2026

Correct answer: C. $50,000, the statutory dollar cap, since 50% of her vested balance exceeds it

Section 72(p) caps plan loans at the lesser of $50,000 or 50% of the participant's vested account balance. Here, 50% of $120,000 is $60,000, but the statutory $50,000 dollar cap is lower and therefore controls, limiting the maximum loan to $50,000.

• AA. Incorrect. IRC §72(p) never permits borrowing the full vested balance; both a percentage limit and a dollar cap apply.
• BB. Incorrect. While 50% of her balance is $60,000, this ignores the statutory dollar cap, which is lower and controls in this case.
• CC. Correct. The lesser of 50% of the vested balance ($60,000) or the $50,000 statutory cap applies, and since $60,000 exceeds $50,000, the maximum loan is $50,000.
• DD. Incorrect. §72(p) imposes both a percentage limit and an absolute dollar cap, so a limit based only on half her balance is not the rule.

• Source: IRS: Retirement topics, loans, accessed October 2026

Correct answer: D. An excise tax penalty imposed on the amount of the shortfall that was not timely withdrawn

Missing an RMD triggers an excise tax penalty on the shortfall. The amount that should have been withdrawn but wasn't. Rather than jeopardizing the plan's overall qualified status or the participant's entire account. The penalty can potentially be reduced or waived by the IRS for reasonable cause and timely correction, but it is not simply avoidable by waiting.

• AA. Incorrect. An individual RMD failure doesn't disqualify the whole plan for every participant.
• BB. Incorrect. The consequence is a tax penalty, not forfeiture of the account.
• CC. Incorrect. A penalty generally does apply to the missed amount, though relief may sometimes be available for reasonable cause.
• DD. Correct. The excise tax penalty applies specifically to the shortfall amount.

• Source: IRC section 4974 (excise tax on accumulations), accessed October 2026

Correct answer: C. Age 73

SECURE 2.0 raised the required beginning age to 73 for individuals reaching that age between 2023 and 2032 (with a further increase to 75 beginning in 2033). A participant born in 1958 falls within the age-73 window, so their required beginning date is April 1 following the year they turn 73.

• AA. Age 70½ was the pre-2020 rule under prior law and no longer applies to this cohort.
• BB. Age 72 applied under the original SECURE Act for a period, but SECURE 2.0 raised the age further for those born 1951. 1959, which includes someone born in 1958.
• CC. Correct. SECURE 2.0 sets the RMD beginning age at 73 for individuals born between 1951 and 1959.
• DD. Age 75 applies under SECURE 2.0 only to those born in 1960 or later, not to someone born in 1958.

• Source: IRS: Retirement topics, required minimum distributions (RMDs), accessed October 2026

Correct answer: A. April 1 following the later of the year the participant turns the applicable RMD age (currently 73) or the year the participant actually retires

For non-5%-owners still employed by the plan sponsor, the 'still working' exception permits delaying required minimum distributions from that employer's qualified plan until April 1 of the year following the later of reaching the applicable RMD age (currently 73 under SECURE 2.0) or actual retirement. This exception does not apply to 5%-or-more owners, who must begin RMDs at the applicable age regardless of employment status, nor does it apply to IRAs.

• AA. Correct. Non-5%-owners who keep working past normal retirement age can generally delay RMDs from that employer's plan until April 1 following the later of turning the applicable RMD age (currently 73) or actually retiring. The 'still working' exception.
• BB. Incorrect. Age 59½ relates to early withdrawal penalties, not the RMD start date, and employment status is precisely what changes the RMD trigger here.
• CC. Incorrect. Age 65 is not the RMD age (currently 73), and a non-5%-owner who is still working may delay RMDs from that employer's plan until after retirement.
• DD. Incorrect. Qualified plan participants must eventually begin lifetime RMDs; the still-working exception only delays the start date for non-5%-owners, it doesn't eliminate the requirement.

• Source: IRS: Retirement plan and IRA required minimum distributions FAQs, accessed October 2026

Correct answer: A. 50%

Ordinary (whole) life insurance, because a significant portion of its premium builds cash value rather than pure protection, is subject to a more generous 50% test. Up to half of the participant's aggregate contributions may be applied to whole life premiums without violating the incidental benefit rule. Term and universal life, which build less or no cash value, are capped at 25%.

• AA. Correct. Under the incidental benefit rule, up to 50% of a participant's aggregate qualified plan contributions may fund ordinary (whole) life premiums before the insurance is considered more than incidental.
• BB. 25% is the threshold that applies to term or universal life insurance (which carry an increasing amount at risk), not to ordinary whole life.
• CC. 10% is not a recognized threshold under the incidental benefit rule for any type of life insurance in a qualified plan.
• DD. 75% overstates the limit; using that much of aggregate contributions for whole life premiums would make the insurance more than incidental.

• Source: Exam outline: The American College CLU designation (courses), accessed October 2026