Question 1

Which of the following statements about withdrawals from Section 401(k)plans is (are)true?
I.The penalty tax does not apply to hardship withdrawals.
II.Withdrawals may be made without penalty at age 59.5 or older.

Accepted Answer

Statement I is false because even hardship withdrawals are subject to a 10% early withdrawal penalty tax unless an exception applies. Statement II is true because withdrawals made after age 59.5 are not subject to the early withdrawal penalty tax. Therefore, only statement II is true.

Question 2

Which of the following statements about retirement ages in defined benefit pension plans is (are)true?
I.The normal retirement age in most plans is 65.
II.In a defined-benefit plan,the early retirement age is the earliest age an employee can retire with full,unreduced benefits.

Accepted Answer

The normal retirement age in most defined benefit pension plans is indeed 65. However, statement II is incorrect because the early retirement age is the earliest age an employee can retire with reduced benefits, not full, unreduced benefits.

Question 3

Which of the following statements about Section 401(k)plans is true?

Accepted Answer

Elective salary deferrals to Section 401(k) plans are indeed free of federal income taxation until the funds are actually withdrawn. This allows for tax-deferred growth of the funds in the meantime. The other statements are false: Section 401(k) plans must follow anti-discrimination rules, there are limits on the percentage of salary that can be deferred by highly compensated employees, and if an employee takes funds in cash, it is typically considered taxable income.

Question 4

Which of the following statements about pension funding agencies and funding instruments is true?

Accepted Answer

The answer of Which of the following statements about pension...

Question 5

Which of the following statements about retirement benefits under pension plans is true?

Accepted Answer

A unit-benefit formula considers both earnings and years of service, meaning the longer an employee works for the company and the higher their earnings, the higher their retirement benefit. Option A is incorrect because a flat percentage formula can result in varying dollar benefits based on different levels of annual earnings. Option B is incorrect because a final pay formula typically considers the employee's earnings during a defined period of time, such as the last few years of their employment, rather than just the last month. Option D is incorrect because past service benefits are typically based on an employee's past years of service with the company, not on bonuses or overtime pay they received during that time.

Question 6

Vesting refers to

Accepted Answer

Vesting refers to the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement. It ensures that employees who contribute to a pension plan are entitled to receive their benefits even if they leave the company before retirement.

Question 7

Which of the following statements about trust fund plans is (are)true?
I.The trustee typically purchases annuities for retiring employees.
II.The trustee guarantees the adequacy of the fund to pay the promised benefits.

Accepted Answer

Trust fund plans involve a trustee managing the funds to ensure they are sufficient to meet future obligations, but the trustee does not typically purchase annuities for retiring employees nor guarantee the adequacy of the fund to pay the promised benefits. These responsibilities usually fall to the employer or plan sponsor.

Question 8

Which of the following statements concerning defined contribution pension plans is (are)true?
I.The contribution rate is fixed.
II. The retirement benefit varies.

Accepted Answer

I is true because in a defined contribution pension plan, the employer and/or employee contribute a fixed percentage or amount of the employee's salary to the plan. 
II is true because the retirement benefit received by the employee from the plan is determined by the amount of contributions made and the investment returns earned on those contributions over time. Therefore, the retirement benefit can vary depending on these factors.

Question 9

Which of the following statements about the protection provided by the Pension Benefit Guaranty Corporation is (are)true?
I.Only defined benefit plans are insured.
II.Only benefits that are not yet vested are guaranteed.

Accepted Answer

Statement I is true, as the Pension Benefit Guaranty Corporation (PBGC) only provides protection for defined benefit plans. However, statement II is false, as the PBGC guarantees both vested and non-vested benefits in the event of a plan termination.

Question 10

Which of the following statements about the tax implications of qualified pension plans is true?

Accepted Answer

Employer contributions to qualified pension plans are tax-deductible up to certain limits as ordinary business expenses. Investment income on plan assets is not taxable until distributions are made to participants or beneficiaries. Employee contributions are made on a pre-tax basis and are not considered taxable income until distributions are made. Distributions from qualified pension plans are generally taxable as ordinary income to the recipient.

Question 11

Which of the following requirements must be met by a top-heavy pension plan to retain its qualified status?
I.A special rapid vesting schedule must be used for non-key employees.
II.Certain minimum benefits or contributions must be provided for non-key employees.

Accepted Answer

Both requirements must be met by a top-heavy pension plan to retain its qualified status. A special rapid vesting schedule must be used for non-key employees and certain minimum benefits or contributions must be provided for non-key employees.

Question 12

Under a unit-benefit formula,benefits are a function of both

Accepted Answer

A unit-benefit formula typically calculates benefits based on a combination of an employee's earnings and years of service. This means that the longer an employee works for a company and the higher their earnings, the greater their benefits will be under this formula. Age and gender are not typically factors in a unit-benefit formula, and neither is an employee's position within the firm.

Question 13

Which of the following distributions from a qualified retirement plan would be exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5?
I.A distribution made to an employee with a qualifying disability.
II.A distribution made to a beneficiary or to the employee estate's after the employee's death.

Accepted Answer

Both options I and II are exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5.

Question 14

A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a

Accepted Answer

The answer of A financial institution that provides for the...

Question 15

Which of the following statements concerning defined-benefit pension plans is (are)true?
I.The contribution rate by the employer varies from year to year.
II. The retirement benefit is not known in advance.

Accepted Answer

The answer of Which of the following statements concerning defined-benefit...

Question 16

As Social Security slants benefits in favor of lower-paid workers,the Internal Revenue Service permits employers to adjust pension contributions so that the overall contributions (pension plus Social Security)are nondiscriminatory.This adjustment permits employers to increase pension contributions for highly-compensated employees.Adjusting contributions to consider Social Security contributions is called

Accepted Answer

Adjusting contributions to consider Social Security contributions is called integration. This adjustment allows employers to increase pension contributions for highly-compensated employees while still ensuring overall contributions (pension plus Social Security) are nondiscriminatory. This is because Social Security benefits disproportionately favor lower-paid workers, so integration allows for a more balanced approach to retirement benefits for all employees.

Question 17

Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan,and 100 of these employees are considered highly compensated.All of the highly compensated employees are covered by the plan.What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test?

Accepted Answer

The ratio percentage test is satisfied if the percentage of non-highly compensated employees covered by the plan is at least 70% of the percentage of highly compensated employees covered. Since all 100 highly compensated employees are covered (100%), at least 70% of that, which is 70% of the non-highly compensated employees, must be covered. 70% of 900 is 630.

Question 18

All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT

Accepted Answer

The answer of All of the following are potential disadvantages...

Question 19

Which of the following statements about the minimum vesting standards for a qualified defined benefit plan is (are)true?
I.Under cliff vesting,an employee must be at least 50 percent vested after 5 years of service.
II.Under graded vesting,an employee must be at least 20 percent vested after 3 years of service and 100 percent vested after 7 years.

Accepted Answer

Under the Pension Protection Act of 2006, the minimum vesting standards for a qualified defined benefit plan specify that under cliff vesting, an employee must be 100% vested after 5 years of service, not 50%. For graded vesting, the law requires an employee to be at least 20% vested after 3 years of service, with vesting increasing by 20% each year until reaching 100% after 7 years, making statement II correct.

Question 20

What are the minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan?

Accepted Answer

The minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan is age 21 and 1 year of service. This is the standard set by the IRS for most retirement plans. Option A is incorrect because 18 is too young for most retirement plans. Option C is incorrect because 3 years of service is too long for many retirement plans. Option D is incorrect because 4 years of service is too long for most retirement plans.

Quiz 17: Employee Benefits: Retirement Plans

Which of the following statements about withdrawals from Section 401(k) plans is (are) true? I.The penalty tax does not apply to hardship withdrawals. II.Withdrawals may be made without penalty at age 59.5 or older.

Which of the following statements about retirement ages in defined benefit pension plans is (are) true? I.The normal retirement age in most plans is 65. II.In a defined-benefit plan,the early retirement age is the earliest age an employee can retire with full,unreduced benefits.

Which of the following statements about Section 401(k) plans is true?

Which of the following statements about pension funding agencies and funding instruments is true?

Which of the following statements about retirement benefits under pension plans is true?

Vesting refers to

Which of the following statements about trust fund plans is (are) true? I.The trustee typically purchases annuities for retiring employees. II.The trustee guarantees the adequacy of the fund to pay the promised benefits.

Which of the following statements concerning defined contribution pension plans is (are) true? I.The contribution rate is fixed. II. The retirement benefit varies.

Which of the following statements about the protection provided by the Pension Benefit Guaranty Corporation is (are) true? I.Only defined benefit plans are insured. II.Only benefits that are not yet vested are guaranteed.

Which of the following statements about the tax implications of qualified pension plans is true?

Which of the following requirements must be met by a top-heavy pension plan to retain its qualified status? I.A special rapid vesting schedule must be used for non-key employees. II.Certain minimum benefits or contributions must be provided for non-key employees.

Under a unit-benefit formula,benefits are a function of both

A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a

Which of the following statements concerning defined-benefit pension plans is (are) true? I.The contribution rate by the employer varies from year to year. II. The retirement benefit is not known in advance.

All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT

What are the minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan?