Deck 4: Employer-Sponsored Retirement Plans

Question 1

Section 457 Plans are nonqualified retirement plans for government employees. (Section 457 Plans)

Answer 1

True

Question 2

Qualified plans entitle employers and employees to substantial tax benefits not offered nonqualified plans. (Introduction)

Answer 2

True

Question 3

Usually,cash balance plans are less costly to employers than defined benefit plans. (Cash Balance Plans and Pension Equity Plans)

Answer 3

True

Question 4

Similar numbers of union and nonunion workers had access to a retirement plans as of 2011. (Trends in Retirement Plan Coverage Costs)

Question 5

A qualified preretirement survivor annuity (QPSA)is an annuity for the life of the participant,with a survivor annuity for the participant's spouse. (Qualified Plans)

Question 6

Nearly 55% of workers employed in the private sector participated in some form of retirement plan in 2011. (Trends in Retirement Plan Coverage Costs)

Question 7

The Revenue Act of 1921 led to the increase in discretionary benefits such as pensions. (Origins of Employer-Sponsored Retirement Benefits)

Question 8

Using the unit benefit formula,the annual benefits are based on age,years of service and final average wages or salary. (Defined Benefit Plans)

Question 9

Accrual rules specify the rate participants can accumulate benefits. (Qualified Plans)

Question 10

Public organizations may offer both 40l(k)and 403(b)plans,but private tax-exempt organizations are prohibited from offering 401(k)plans. (Section 403(b)Tax-Deferred Annuity Plans)

Question 11

Wearaway occurs whenever benefits accrue at a substantially higher rate during the years close to an employee's eligibility to earn retirement benefits. (Converting Defined Benefit Plans to Cash Balance Plans)

Question 12

Part time workers are employed to save on costs of benefits. (Trends in Retirement Plan Coverage Costs)

Question 13

Savings Incentive Match Plans for Employees (SIMPLEs)can be either leveraged or nonleveraged. (Savings Incentive Match Plans for Employees (SIMPLEs))

Question 14

Forfeitures come from the accounts of employees who terminate their employment prior to earning vesting rights. (Defined Contribution Plans)

Question 15

The current tax treatment provides incentives only to employers to participate in retirement plans. (Origins of Employer-Sponsored Retirement Benefits)

Question 16

In nonleveraged ESOPs,the company borrows money from a financial institution to purchase company stock. (Employee Stock Option Plans (ESOPs))

Question 17

Vesting rights focus on employer contributions. (Qualified Plans)

Question 18

The major distinction between the unit and flat defined benefit formulas is the use of the employee's years of service. (Defined Benefit Plans)

Question 19

IRC Section 403(b)established the tax-deferred annuity program as a qualified contribution plan under ERISA guidelines. (Section 403(b)Tax-Deferred Annuity Plans)

Question 20

According to the US Department of the Treasury,qualified retirement plans must cover at least 50 employees or at least 40% of the employer's workforce. (Qualified Plans)

Question 21

To qualify as a nondiscriminating defined contribution plan,it must meet which two safe harbors? (Defined Contribution Plans)

A)Base contribution formula or collateral contribution formula
B)Fixed first-dollar-of-profits formula or graduated first-dollar-of-profits formula
C)Uniform allocation formula or uniform points allocation formula
D)Profitability threshold formula or the backloading formula

Question 22

These two are the basic accrual rules for the nondiscrimination testing for defined contribution plans. (Defined Contribution Plans)

A)Contributions cannot be reduced based on age, no maximum age limit for discontinuing contributions
B)Contributions can be reduced based on age if everyone in the plan is affected, age, no maximum age limit for discontinuing contributions
C)Contributions can be reduced based on age if everyone in the plan is affected, no minimum age limit for discontinuing contributions
D)Contributions can be increased based on age, no maximum age limit for discontinuing contributions

Question 23

The present value of benefits based on a designated date is known as accumulated benefit obligation. (Defined Benefit Plans)

Question 24

This type of hybrid plan is based on income and years of service,uses individual accounts,passes the IRS's cross-testing rules and the total benefits are based on the investment performance of the plan's assets. (Target Benefit Plans)

A)Target benefit plan
B)Money purchase plan
C)Age-weighted profit sharing plan
D)Cash balance plan

Question 25

Plan termination rules apply and procedures apply to all types of pension plans. (Qualified Plans)

Question 26

Defined contribution plans guarantee particular benefit amounts to participating employees. (Defined Contribution Plans)

Question 27

In 2011,41% employees participated in defined contribution plans. (Trends in Retirement Plan Coverage and Costs)

Question 28

The Tent Circuit Court ruled in Tomlinson et al.vs.El Paso Corporation that ERISA did not require the employer to provide notification of wearaway periods so long as employees were informed and forewarned of plan changes. (Converting Defined Benefit Plans to Cash Balance Plans)

Question 29

Employees can participate in pension plans after they have reached the age of 25 (Qualified Plans)

Question 30

Defined contribution plans are costlier for employers than defined benefit plans. (Defined Contribution Plans)

Question 31

Top-heavy provisions ensure minimum benefits for key employees. (Qualified Plans)

Question 32

Employers can take tax deductions on qualified plans. (Introduction)

Question 33

What is the 3% rule used to determine? (Defined Benefit Plans)

A)Nondiscrimination in defined benefits plans
B)Nondiscrimination in defined contribution plans
C)Tax benefit qualification for defined benefits plans
D)Tax benefit qualification for defined contribution plans

Question 34

The 133^1/3 % rule refers to what? (Defined Benefit Plans)

A)The annual accrual rate for defined benefits plans
B)The annual accrual rate for defined contribution plans
C)The annual accrual rate for qualified benefit plans
D)The annual accrual rate for qualified contribution plans

Question 35

Savings incentive match plans for employees (SIMPLEs)have the following characteristics (Savings Incentive Match Plans for Employees (SIMPLEs))

A)The company has at least 100 employees, the employees' preceding year's compensation totaled at least $5000, the company has no other employer-sponsored retirement plan
B)The company has fewer than 100 employees, the employees' preceding year's compensation totaled less than $5000, the company has no other employer-sponsored retirement plan
C)The company has fewer than 100 employees, the employees' preceding year's compensation totaled less than $5000, the company offers other employer-sponsored retirement plans
D)The company has fewer than 100 employees, the employees' preceding year's compensation totaled at least $5,000, the company has no other employer-sponsored retirement plan

Question 36

Which of the following are characteristics of the flat benefit formula used in defined benefits plans? (Defined Benefit Plans)

A)An employee's years of service are considered, is determined using a flat amount formula or a flat percentage formula, the benefit is based on a percentage of the employees final average wage or salary
B)Is determined using a flat amount formula or a flat percentage formula an employee's years of service are considered, the benefit is based on a percentage of the employees final average wage or salary, is based on the employee's last 3-4 years of service
C)Is based on the employee's last 3-4 years of service an employee's years of service are considered, The benefit is based on a percentage of the employees final average wage or salary, an employee's years of service are considered
D)The benefits are based on a percentage of the employees final average wage or salary, are based on the employee's last 3-4 years of service and are determined using a flat amount formula or a flat percentage formula

Question 37

The average benefit test is a method for determining participation requirements. (Qualified Plans)

Question 38

Companies establish retirement plans following one of these three design configurations. (Introduction)

A)Defined benefit, defined contribution, hybrid
B)Qualified benefit, qualified contribution, hybrid
C)Qualified benefit, nonqualified benefit, hybrid
D)Funded, unfunded, hybrid

Question 39

Pension plans do not automatically fulfill the nondiscrimination requirement if they fall in safe harbors. (Qualified Plans)

Question 40

The IRC limit on maximum annual benefit is indexed for inflation in $7000 increments each year beginning after 2006. (Defined Benefit Plans)

Question 41

The benefits distributed from profit sharing plans are usually allocated using one of these three ways. (Profit Sharing Plans)

A)Lump sum payments, graduated payments, proportional payments based on their contributions to profits
B)Equal payments, proportional payments based on salary, lump sum payments, graduated payments
C)Equal payments, proportional payments based on salary, proportional payments based on their contributions to profits
D)Equal payments based on contributions to profits, equal payments based on salary, lump sum payments

Question 42

Retirement benefits are generally distributed in one of these three ways. (Qualified Plans)

A)Backloading, collateral payments, offset approach
B)Periodic payments, lumps sums collateral payments
C)Annuities, lumps sums offset payments
D)Lumps sums, annuities, periodic payments

Question 43

Briefly discuss the origins and trends in retirement plans in the US. (Defining Retirement Plans)

Question 44

Roth 401(k)plans are similar to 401(k)plans in which two ways? (Roth 401(k)Plans)

A)Employee contributions are not taxed at the individual's tax rate, upon retirement employee withdrawals are not taxed
B)Employee contributions are taxed at the individual's tax rate, upon retirement employee withdrawals are not taxed
C)Employee contributions are not taxed at the individual's tax rate, upon retirement employee withdrawals are taxed
D)Employee contributions are taxed at the individual's tax rate, upon retirement employee withdrawals are taxed

Question 45

Using the ratio percentage test for tax benefit qualification,what does the percentage of nonhighly compensated employees to highly compensated employees in the plan have to be? (Qualified Plans)

A)30%
B)70%
C)60%
D)40%

Question 46

Which of the following is a tax benefit associated with 401(k)plans? (401(k)Plans)

A)Employees pay taxes on their contribution
B)Employees do not pay taxes on their contributions
C)Investment gains are taxed
D)Employees cannot deduct their contributions from taxable income

Question 47

Which of the following does NOT reflect one of the major differences between typical cash balance plans and 401 (k)plans? (Comparing Hybrid Plan Features with Defined Benefit Plan and Defined Contribution Plan Features)

A)As opposed to 401 (k) plans, participation in typical cash balance plan generally depends on the workers contributing part of their compensation to the plan
B)While in cash balance plans the employer bears the risks of the investments, under 401(k) employees bear the risks
C)Unlike 401(k) plans, cash balance plans are required to offer employees the ability to receive their benefits as lifetime annuities
D)Cash balance plans are insured by PBGC, but not 401(k) plans

Question 48

Which of the following factors does not determine the accrual rate in defined contribution plans? (Defined Contribution Plans)

A)Benefits equal balance in the account
B)Company cannot set maximum age limits for discontinuing contributions
C)Company's contribution cannot be reduced because of employee age
D)Benefits exceed the balance in the account

Question 49

This type of hybrid plan defines benefits for each employee by reference to the amount of the employee's hypothetical account balance. (Cash Balance Plans and Pension Equity Plans)

A)Money purchase plan
B)Target benefit plan
C)Cash balance plan
D)Pension equity plan

Question 50

Which one of these is not a defined contribution plan? (Types of Defined Contribution Plans)

A)Cash balance plan
B)ESOPs
C)SIMPLE
D)Profit sharing

Question 51

Discuss the controversies related with cash balance retirement plans. (Controversy Surrounding Cash Balance Plans)

Question 52

Which of the following is not an accrual criteria? (Defined Benefit Plans)

A)Average benefit test
B)3% rule
C)Fractional rule
D)113 1/3 rule

Question 53

In 2012,the IRC set the maximum annual benefits of defined benefits plans at what amount? (Defined Benefit Plans)

A)$135,000
B)$200,000
C)$235,000
D)$250,000

Question 54

Which legislative act made benefit and contribution limits permanent? (Qualified Plans)

A)ERISA Title I
B)Economic Growth and Tax Relief Reconciliation Act of 2001
C)Pension Protection Act of 2006
D)ERISA Title III

Question 55

Which of the following is not a hybrid plan? (Hybrid Plans)

A)Money purchase
B)Cash balance
C)Stock option
D)Target benefit