Question 1

Ryan puts $10,000 in pretax income in a tax-deferred retirement savings account earning 8% per year. After 40 years, how much more will the investment have grown as compared to investing $10,000 in a taxable account, assuming his marginal tax rate is 25%?

Accepted Answer

In a tax-deferred account, the full $10,000 grows at 8% for 40 years, resulting in $217,245.57. In a taxable account, the after-tax contribution is $7,500, and it grows at an effective rate of 6% (8% minus 25% tax on gains), resulting in $102,857.53. The difference is $114,388.04.

Question 2

A government agency pays their agents' retirement at 4% of final salary per year of service. Mr. Smith has worked for the agency for 17 years, with a beginning salary of $100,000 and an ending salary of $200,000. At retirement, how much should Mr. Smith expect to receive from the agency?

Accepted Answer

Mr. Smith's final salary is $200,000. He has worked for the agency for 17 years. So, he should expect to receive 17 * 4% * $200,000 = $136,000 from the agency.

Question 3

A defined-contribution plan is a

Accepted Answer

A defined-contribution plan involves the employer making periodic contributions to an employee's retirement account without guaranteeing a specific retirement benefit amount. The retirement benefit depends on the contributions made and the investment performance of the account.

Question 4

The proportion of workers participating in __________ plans has been declining, while the proportion participating in __________ plans has been increasing.

Accepted Answer

Defined-benefit (DB) plans have been declining as employers shift to defined-contribution (DC) plans, which are more cost-effective and shift investment risk to employees.

Question 5

IRS rules for tax-qualified plans set a minimum normal retirement age at

Accepted Answer

The answer of IRS rules for tax-qualified plans set a...

Question 6

The rules that define the number of years of employment required before employees have legal rights to accrued retirement plan contributions and benefits are known as

Accepted Answer

Vesting rules determine the period an employee must work before gaining legal rights to their retirement plan contributions and benefits.

Question 7

Which of the following types of retirement plans require the employer to contribute a set percentage of salary to the plan regardless of profitability of the company?

Accepted Answer

A money-purchase plan requires the employer to contribute a fixed percentage of an employee's salary to the retirement plan, regardless of the company's profitability.

Question 8

Which plan places the greatest amount of risk on the participant?

Accepted Answer

In a defined-contribution plan, the participant bears the investment risk, as the retirement benefits depend on the account's investment performance.

Question 9

If Blake Thompson were to take his retirement plan from his old employer and invest it in the plan of his new employer, what feature of a defined-benefit plan is he exercising?

Accepted Answer

Portability refers to the ability to transfer retirement benefits from one employer's plan to another, which is what Blake Thompson is doing by moving his retirement plan to his new employer's plan.

Question 10

In a profit-sharing retirement plan, the

Accepted Answer

In a profit-sharing retirement plan, the employer's contributions are discretionary and often depend on the company's financial performance for the year.

Question 11

The most common defined-contribution plan for businesses is the

Accepted Answer

The 401(k) plan is the most common defined-contribution retirement plan offered by businesses, allowing employees to save and invest a portion of their paycheck before taxes are taken out.

Question 12

Plenius Jackson owns an engineering firm with 14 employees, and he is evaluating retirement plans for his professional staff. Which of the following retirement plans should he not be considering?

Accepted Answer

403(b) plans are not available to self-employed individuals, such as Plenius Jackson.

Question 13

Which of the following is not an example of a defined-contribution retirement plan?

Accepted Answer

Pension plans are typically defined-benefit plans, where the employer guarantees a specific retirement benefit amount, unlike defined-contribution plans where the contribution is defined but the benefit is not guaranteed.

Question 14

Which of the following statements is true about the trends in employment-based retirement plans?

Accepted Answer

Over the past few decades, there has been a significant shift from defined-benefit plans to defined-contribution plans, with most employees now participating in defined-contribution plans.

Question 15

Which of the following groups of workers is least likely to be getting contributions from their employer toward a retirement plan?

Accepted Answer

Part-time and low-wage workers are less likely to receive employer contributions to retirement plans due to less access to benefits and eligibility requirements.

Question 16

If you have income from self-employment, you can make tax-deferred contributions to an HR-10 plan, commonly called a

Accepted Answer

A Keogh plan, also known as an HR-10 plan, is a tax-deferred pension plan for self-employed individuals and unincorporated businesses.

Question 17

__________ combine features of both defined-contribution and defined-benefit plans.

Accepted Answer

Cash-balance plans combine features of both defined-contribution and defined-benefit plans by providing a defined benefit in the form of an account balance, which grows annually with employer contributions and interest credits.

Question 18

Which of the following is not a retirement plan for self-employed individuals and small business owners?

Accepted Answer

ESOPs are not retirement plans for self-employed individuals and small business owners. They are retirement plans for employees of large corporations.

Question 19

Which retirement plan for small businesses allow for employee salary deferrals?

Accepted Answer

A SIMPLE plan allows for employee salary deferrals, enabling employees to contribute a portion of their salary to the retirement plan.

Question 20

Zane Blackstone, a famous lead guitarist for a rock band, is very worried about the possibility of his new skydiving hobby leaving him unable to perform. Which type of insurance should he consider purchasing?

Accepted Answer

Own occupation disability income insurance provides coverage for individuals who are unable to perform the duties of their own occupation due to a disability. In this case, Zane Blackstone is a lead guitarist for a rock band and is worried about the possibility of his new skydiving hobby leaving him unable to perform. Therefore, own occupation disability income insurance would be the most appropriate type of insurance for him to consider purchasing.

Quiz 9: Employee Benefits: Health, Disability, and Retirement Plans