Deck 20: Employee Benefits: Retirement Plans

Question 1

Defined benefit plans use a specified formula to determine the level of benefits that a retiree will receive.

Answer 1

True

Question 2

Defined contribution plans use a specified formula to determine the exact amount of the employer's contributions.

Answer 2

True

Question 3

The normal retirement age reflects the earliest age at which employees can retire and receive full pension benefits.

Answer 3

True

Question 4

Retirement after the normal retirement age often results in increasing benefits that are higher than the amount justified from an actuarial perspective.

Question 5

In order to make a 401(k) plan attractive from the perspective of employees, employers must make matching contributions.

Question 6

A Keogh plan is a retirement plan designed for persons with self-employment income and can be in the form of either a profit sharing or a pension plan.

Question 7

A SIMPLE 401(k) plan is always more attractive than a regular 401(k) plan.

Question 8

In designing qualified pension plans, employers are not regulated as long as the plan is considered nondiscriminatory.

Question 9

A Section 403(b) plan is a viable option for providing retirement benefits for most commercial businesses.

Question 10

Employees are not allowed to deduct contributions to contributory qualified pension plans.

Question 11

Pensions are usually paid out in the form of an annuity.

Question 12

Lump-sum distributions from employer sponsored pension plans may not be rolled over into individual retirement accounts unless the employee has paid federal income tax on the entire amount of the distribution.

Question 13

Permitted disparity allows a certain degree of discrimination in favor of highly-compensated employees.

Question 14

Vesting deals with the degree to which a particular plan participant's pension benefits have been funded.

Question 15

The Pension Benefit Guarantee Corporation (PBGC) is a federal agency that provides optional plan termination insurance for employees covered by qualified defined benefit pension plans.

Question 16

Match the descriptions with their terms:

-_________________ allows an employer to make higher contributions for employees who have an income level above a chosen integration level.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 17

Match the descriptions with their terms:

-A/An _________________ allows employees to deduct the amount of their contributions in the year made and to defer income taxes on the investment earnings until distribution to the employee. It may involve contributions made by the employer matching a percentage of each employee's contribution.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 18

Match the descriptions with their terms:

-_________________ require that a record be kept of the account of each employee and that each dollar an employer contributes is associated with a particular employee.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 19

Match the descriptions with their terms:

-An IRA _________________ involves placing assets formerly held in an IRA or in an employer sponsored retirement plan into a new IRA.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 20

Match the descriptions with their terms:

-The _________________ generally is stated in a pension plan and represents the earliest age at which the employee can retire and receive full pension benefits.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 21

Match the descriptions with their terms:

-_________________ are retirement savings plans that are designed for use by those who have self-employment income.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 22

Match the descriptions with their terms:

-_________________ must meet minimum requirements specified in the Internal Revenue Code.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 23

Match the descriptions with their terms:

-Although prior to 1986 many employers were allowed to specify a/an _________________, this practice is not permitted now for most jobs.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 24

Match the descriptions with their terms:

-A/An _________________ uses a formula to compute the monthly benefit payable at retirement.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 25

Match the descriptions with their terms:

-Retirement plans reserved exclusively for public schools, universities, hospitals, and nonprofit organizations operated exclusively for religious, scientific, charitable, literary, educational, cruelty prevention, or public safety testing purposes are _________________.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 26

Match the descriptions with their terms:

-By exercising a/an _________________, employees can gain some investment flexibility, but they typically will lose the lifetime income guarantee associated with the annuity option.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 27

Match the descriptions with their terms:

-_________________ keep the pension funds in trust for a group of employees and at retirement the pension often is paid from the general fund.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 28

Match the descriptions with their terms:

-A/An _________________ specifies the amount that the employer will contribute to the plan, with the exact amount of retirement benefit to be paid left undetermined until each employee retires.

A) 401(k) plan
B) Allocated plans
C) defined benefit plan
D) defined contribution plan
E) Keogh plans
F) lump-sum distribution option
G) Mandatory retirement age
H) normal retirement age
I) Permitted disparity
J) Qualified plans
K) rollover
L) Section 403(b) plans
M) Unallocated plans

Question 29

Dr. William Fleming, Sr. turned 62 in 2004. He retires at age 67 (his Social Security normal retirement age is 65 years and 10 months). His PIA is $1,000. If he elects to receive social security benefits upon retirement, what monthly amount would he receive?

A) $1,065,
B) $1,088,
C) $1,000,
D) $2,000.

Question 30

The ability of employers to take an income tax deduction for contributions to a retirement plan is important for all of the following types of plans except:

A) defined benefit pension plans,
B) defined contribution pension plans,
C) 401(k) plans,
D) Section 403(b) plans.

Question 31

A plan that is typically funded with the common stock of the employer is the

A) ESOP,
B) 401(k) plan,
C) thrift plan,
D) Keogh plan.

Question 32

Retirement plans that are designed for use by self-employed individuals are

A) Section 403(b) plans,
B) Keogh plans,
C) thrift plan,
D) SIMPLEs.

Question 33

Kelly, a 39 year old earning $200,000 per year working for a pension consulting firm, would like to contribute the maximum tax deductible amount to her IRA. She is married to Tim, who is completely disabled and has not earned any income this year. Assuming that she is not participating in an employer sponsored plan (although her employer offers a contributory pension plan), Kelly should contribute

A) $0, because she earns more than $50,000,
B) $0, because her employer offers a qualified retirement plan,
C) $3,000,
D) $6,000.

Question 34

PBGC termination insurance is required of all

A) employee benefit plans,
B) pension plans,
C) qualified pension plans,
D) qualified defined benefit plans.

Question 35

Contributory plans involve

A) a requirement that employees contribute a part of the cost of the plan,
B) a formula that specifically defines the amount that an employer must contribute,
C) less paperwork than noncontributory plans because defined benefit plans involve more actuarial projections,
D) only retirement related plans and never other forms of employee benefits.

Question 36

Which of the following statements is not true in relation to minimum eligibility requirements for participation in pension plans?

A) The highest minimum age requirement is 21 years,
B) Plans can include a minimum service requirement,
C) These requirements are the same as required for other employee benefits such as employer provided group life insurance,
D) Within certain limits, specified job classifications can be excluded from coverage.

Question 37

Which of the following statements is true in relation to the normal retirement age (NRA) of a qualified pension plan?

A) The NRA generally is higher in defined contribution plans than in defined benefit plans,
B) All qualified plans specify an NRA,
C) NRAs must be between 62 and 65,
D) The NRA is always specified as the age of the employee.

Question 38

Which of the following statements is not true in relation to mandatory retirement ages?

A) Mandatory retirement ages are never allowed,
B) Mandatory retirement ages specify an age at which an employee must retire,
C) Prior to 1986, the lowest mandatory retirement age allowed was 70,
D) Mandatory retirement ages are sometimes allowed.

Question 39

A payment option that generally is not allowed from a pension plan is a/an

A) lump-sum distribution,
B) annuity,
C) joint and survivor annuity,
D) distribution in the form of the employer's stock.

Question 40

Which of the following is not a tax benefit associated with a qualified pension plan?

A) deductibility of employer contributions in the year made,
B) deferral or avoidance of taxes on employer contributions,
C) deferral of taxation on investment earnings within the pension fund,
D) deductibility of employee contributions in the year made if the plan is contributory.

Question 41

Which of the following statements is not true about early retirement options for pension plan participants?

A) Employers do not have to allow workers to retire and begin collecting benefits before the normal retirement age,
B) If a participant in a defined benefit pension plan chooses to retire early, the benefit will typically be the amount determined by application of the benefit formula without adjustment for actuarial factors,
C) Additional funding generally is not required at early retirement if the benefit is reduced to the full actuarial equivalent of the benefit payable at the normal retirement age,
D) Early retirement can be encouraged by granting more than the full actuarial equivalent if a participant chooses to retire early.

Question 42

Which of the following statements is true regarding pension plan vesting?

A) Vesting provisions apply to employee contributions,
B) The most common form of vesting provision contains a graded vesting schedule whereby the percentage of vesting rises with each year of employee participation,
C) The most common form of vesting provision involves an employee becoming fully vested after five years,
D) Before becoming vested, employees who terminate their employment will forfeit their pension rights to the extent that they have not been funded by the employer.