Deck 10: Pension Plans and Finance Companies

Question 1

Most pension plans are

A) overfunded.
B) contributory.
C) non-contributory.
D) uninhibited.

Answer 1

contributory.

Question 2

Which of the following statements is/are correct?

A) public pension fund total assets exceed the total assets of private pension funds
B) the largest single pension fund in the United States is the California Public Employees Retirement System ICALPERS)
C) private pension funds total assets exceed the total assets of public pension funds
D) a and c
E) b and c

Answer 2

b and c

Question 3

Withdrawals from a Roth RA (after the owner has reached age 59+'/2) are, in general:

A) taxed as capital gains.
B) not taxed.
C) axed as ordinary income.
D) subject only 20 FICA taxes.

Answer 3

not taxed.

Question 4

Withdrawals from a traditional IRA (after the owner has reached age 59+1/2) are, in general

A) taxed as capital gains
B) not taxed
C) taxed as ordinary income
D) subject only to FICA taxes

Question 5

For defined contribution pension plans, the risk of underperformance of the invested assets lies with

A) the PBGA.
B) the employer.
C) the employee.
D) the pension fund manager.

Question 6

The primary legislation under which pension plans are regulated is

A) Employee Retirement Income Security Act (ERISA).
B) FDIC Improvement Act (FDICIA).
C) Pension Plan Regulations Act (PPRA).
D) Codicils for the Regulation of American Pensions (CRAPS).

Question 7

The primary federal regulator of defined benefit pension plans is

A) the Department of Commerce
B) the Pension Benefit Guarantee Corporation
C) the Department of Veterans Affairs
D) the FDIC

Question 8

The old age, survivors, and disability income (OASDI) portion of Social Security is

A) free.
B) funded solely by a progressive income tax on annual income exceeding $106,800 (as of 2009).
C) funded solely by sales taxes.
D) funded solely by a flat tax on annual income below $106,800 (as of 2009)
E) None of the above is correct.

Question 9

The Medicare and Medicaid portion of Social Security is

A) free
B) funded solely by a progressive income tax on annual income exceeding $106,800 (as of 2009)
C) funded solely by sales taxes
D) funded solely by a flat tax on annual income blow $106,800 (as of 2009)
E) none of the above

Question 10

Social Security is a

A) pension plan.
B) disability insurance plan.
C) medical care plan.
D) A1l of the above are correct.

Question 11

Most U.S. workers fully qualify for Social Security after

A) 10 years of part-time employment.
B) 10 years of full-time employment.
C) 15 quarters of employment.
D) 3 months of full time employment or 6 months of part-time employment.

Question 12

If current forecasts prove true, in 2030 there will be workers for each Social Security recipient,

A)2
B)13
C)3
D)9

Question 13

Including both OASDI tax and the Medicare tax, self-employed individuals in the U.S. pay a FICA payroll tax rate of

A) 38.30%
B) 15.30%
C) 7.65%
D) 0.14%

Question 14

Including both OASDl tax and the Medicare tax, most employees in the U.S. pay a payroll tax rate of:

A) 38.30%
B) 15.30%
C) 7.65%
D) 0.14%

Question 15

Many nations have public pension insurance plans similar to Social Security, and they have many of the same problems that Social Security has. Privatization has been proposed as a potential solution to these problems. The most successful such privatization has taken place in

A) Thailand.
B) France.
C) Chile.
D) Morocco.

Question 16

Finance companies engage in all of the following businesses except

A) subprime real estate loans.
B) manufactured housing loans.
C) 125% equity loans.
D) underwriting municipal bonds.

Question 17

Automobile dealer often finance their inventories of new vehicles through finance companies using

A) lease financing.
B) mortgage loans.
C) floor plans.
D) sub-prime loans.

Question 18

Lease payments on a vehicle are often less than payments on an equivalent loan. In part, this reflects the fact that

A) leases provide depreciation tax benefits to the leaser that borrowers might not be able to take full advantage of.
B) Leases are typically based on only a portion of the cost of the vehicle.
C) repossession of leased vehicles is easier as the leaser retains title to the vehicle.
D) All of the above are correct.

Question 19

Finance companies that specialize in the purchase of accounts receivable of other firms are called

A) pawnbrokers.
B) factoring companies.
C) brigands.
D) addends.

Question 20

PBGC insures

A) all pension plans.
B) defined benefit pension plans only.
C) defined contribution pension plans only.
D) sub-prime pension plans.

Question 21

Which of the following is true?

A) Finance companies are depository institutions that lend funds to households to finance consumer purchases.
B) Finance companies lend funds to firms to finance accounts receivables, inventories, and to purchase machinery.
C) Finance companies lend to governments for short periods until tax receipts come in.
D) All of the above are true.

Question 22

Which of the following intermediaries is most likely regulated by the Pension Benefit Guaranty Corporation?

A) factoring companies
B) private defined-benefit pension funds
C) Defined-contribution pension funds
D) finance companies

Question 23

Which of the following is true?

A) Repossession is the process whereby a lender takes back the assets used to secure a loan.
B) A sales finance company makes loans to consumers so that they can purchase a product from a particular manufacturer or retailer
C) Consumer finance companies offer personal loans to consumers to purchase or lease motor vehicles, mobile homes, furniture, and appliances.
D) All of the above are true.

Question 24

A 401 (k) Plan

A) is designed to make-up any shortfall if social security is unable to pay the benefits it owes.
B) allows unlimited contributions per year by the employee and the employer.
C) a defined-contribution plan that allows for greater flexibility in employer and employee contributions.
D) Guarantee a minimum pension to an employee who is vested

Question 25

Which of the following is false?

A) Pension plan assets have decreased in the financial crisis of 2007-2008.
B) All pension plan assets are insured by Penny Benny.
C) The trend in recent decades has been towards defined contribution plans and away from defined-benefit plans.
D) The primary regulator of pension plans is the Department of Labor.

Question 26

Which of the following is a reason for the trend towards defined contribution plans and away from defined-benefit plans?

A) To reduce the burden on the employer of guaranteeing a fixed pension.
B) To reduce the risk of underfunding of a pension plan due to loses in the investments the pension plan has made.
C) To eliminate the risk of having funds to meet the defined-benefit obligations.
D) All of the above are correct.

Question 27

Plans that assist small businesses to offer salary deductions and matching contributions to funds retirement savings for their workers.

A) Keogh Plans.
B) Simplified Employee Pensions (SEPs).
C) Roth IRA
D) SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers).

Question 28

Tax-advantaged savings accounts administered by banks and other financial intermediaries for the retirement needs of self-employed people.

A) Keogh Plans.
B) Simplified Employee Pensions (SEPs).
C) Roth IRA
D) SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers).

Question 29

Retirement accounts in which one's contributions are taxed, but the earnings accumulated within the account are tax-exempt are

A) Keogh Plans.
B) Simplified Employee Pensions (SEPs).
C) Roth IRA
D) SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers).

Question 30

Small business pension plans created by Congress in 1978 with fewer reporting requirements and costs and less administrative complexity than traditional pension plans.

A) Keogh Plans.
B) Simplified Employee Pensions (SEPs).
C) Roth IRA
D) SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers).

Question 31

Pension plans in which only the employee contributes are

A) noncontributory plans.
B) Contributory plans.
C) Defined-benefit plans
D) None of the above is correct.

Question 32

Pension plans in which only the employer contributes are

A) noncontributory plans.
B) contributory plans.
C) defined-benefit plans
D) None of the above is correct.

Question 33

Which of the following is not a reason for the trend towards defined contribution plans and away from defined-benefit plans?

A) To reduce the burden on the employer of guaranteeing a fixed pension.
B) To reduce the risk of underfunding of a pension plan due to loses in the investments the pension plan has made.
C) To eliminate the risk of having funds to meet the defined-benefit obligations.
D) Increases in manufacturing sector employment.

Question 34

The major act of 1974 that established federal standards for defined-benefit pension plans is

A) the Employee Retirement Income Security Act.
B) the Pension Benefit Guarantee Act.
C) the Social Security Act.
D) Pension Protection Act.

Question 35

The 2006 act that was designed to insure that defined-benefit pension plans were fully funded is

A) the Employee Retirement Income Security Act.
B) the Pension Benefit Guarantee Act.
C) the Social Security Act.
D) The Pension Protection Act

Question 36

Which of the following is true?

A) Social security tax payments are made with the understanding that under certain conditions, we (or our dependents) will be eligible for benefits.
B) Low income workers are likely to pay lower social security premiums but receive more generous benefits relative to their contributions.
C) Medicare and Medicaid insurance programs were enacted in 1966.
D) Social security is financed based on a payroll tax.
E) All of the above are true.

Question 37

Which of the following is false?

A) Pension plans are one of the fastest growing types of financial intermediary.
B) Defined-benefit plans have increased in relative importance in the last 20 years.
C) The Social Security system faces funding challenges due to the growing number of retirees relative to the number of workers.
D) The social security system faces funding challenges due to the fact that retirees have longer life expectancies.

Question 38

Which of the following is false?

A) Finance companies were active lenders in the subprime loan market.
B) Finance companies are lenders in the manufactured housing market.
C) Captive finance companies make loans only for a particular manufacturer's products.
D) Even though finance companies accept deposits, they are less regulated than other types of lenders.