Deck 4: Employer-Sponsored Retirement Plans

Question 1

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

Answer 1

False

Question 2

Capital-intensive businesses require highly capable employees who have the aptitude to learn how to use complex physical equipments such as casting machines and robotics.(Trends in Retirement Plan Coverage and Costs)

Answer 2

True

Question 3

Service industries such as retail and food service are not capital intensive,and most have the reputation of paying low wages and offering less generous benefits,including retirement plans.(Trends in Retirement Plan Coverage and Costs)

Answer 3

True

Question 4

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

Question 5

A salary reduction agreement refers to the annual maximum allowable contribution to a participant's account in a defined contribution plan.(Defined Contribution Plans)

Question 6

Unions generally secured high wages for their members through the earl 1960s,when competition from foreign companies offered quality products at similar or lower prices.(Trends in Retirement Plan Coverage and 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

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

Question 9

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

Question 10

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

Question 11

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 vs.Nonqualified Plans)

Question 12

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

Question 13

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

Question 14

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

Question 15

The Revenue Act of 1921 instituted retirement plans as a mandatory bargaining subject between unions and management.(Origins of Employer-Sponsored Retirement Benefits)

Question 16

Nearly 55% of workers employed in the private sector participated in some form of retirement plan in 2016.(Trends in Retirement Plan Coverage and Costs)

Question 17

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

Question 18

The Internal Revenue Code and ERISA's Title I and Title II provisions set 13 minimum standards to determine whether retirement plans are qualified or nonqualified.(Qualified vs.Nonqualified Plans)

Question 19

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

Question 20

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

Question 21

Only one event triggers a mandatory distribution: the participant reaches age 65 or the normal retirement age.(Qualified vs.Nonqualified Plans)

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

Under a defined benefit plan,the benefit is fixed by a formula and employer contributions remain the same from year to year.(Defined Benefit Plans)

Question 28

In defined contribution plans,employees vest in gross employer contributions.(Qualified vs.Nonqualified Plans)

Question 29

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

Question 30

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 31

Cliff vesting schedules must grant employees 100 percent vesting after no more than three years from beginning participation in the retirement plan.(Qualified vs.Nonqualified Plans)

Question 32

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

Question 33

A top-heavy plan must also provide a special vesting schedule: 3-year 100% vesting schedule,or 6-year graded vesting schedule.(Qualified vs.Nonqualified Plans)

Question 34

Companies establish qualified plans for executive employees.(Qualified vs.Nonqualified Plans)

Question 35

The Tenth 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.(Cash Balance Plans and Pension Equity Plans)

Question 36

The Pension Benefit Guarantee Corporation recognizes three types of plan terminations: distress terminations,involuntary terminations,and standard terminations.(Defined Contribution Plans)

Question 37

Employers can take tax deductions on qualified plans.(Qualified vs.Nonqualified Plans)

Question 38

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

Question 39

Safe harbors refer to compliance guidelines in a law or regulation.(Qualified vs.Nonqualified Plans)

Question 40

In 2016,44% employees participated in defined contribution plans.(Trends in Retirement Plan Coverage and Costs)

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

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 43

Retirement benefits are generally distributed in one of these three ways.(Qualified vs.Nonqualified 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 44

There are three possible contribution sources for defined contribution plans.Which of the following is not one of those sources? (Defined Contribution Plans)

A)Social Security integration
B)Employer contributions
C)Forfeitures
D)Employee contributions

Question 45

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

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

Question 46

_____ provides non-key employees with a minimum benefit if it is a defined benefit plan or a minimum contribution if it is a defined contribution plan.(Qualified vs.Nonqualified Plans)

A)The fractional rule
B)An accumulated benefit obligation
C)A top-heavy plan
D)A fiduciary

Question 47

Define vesting and explain what employees are vesting in when in a defined benefit plans or in a defined contribution plans.Briefly explain the difference between cliff vesting and the six-year graduated vesting schedule.(Qualified vs.Nonqualified Plans)

Question 48

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 49

Roth 401(k)plans differ from 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
Essay Questions

Question 50

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 51

Discuss the controversies related with cash balance retirement plans.(Concerns about Cash Balance Plans)

Question 52

In 2017,the IRC set the maximum annual benefits of defined benefits plans at what amount? (Defined Benefit Plans)

A)$135,000
B)$215,000
C)$235,000
D)$250,000

Question 53

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 54

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 55

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 56

Employers establish qualified plans when all of the ERISA minimum standards are met.Failure to meet at least one minimum standard results in a plan becoming disqualified.List as many ERISA minimum standards as you can remember and explain the main advantage of offering qualified plans.(Qualified vs.Nonqualified Plans)

Question 57

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 58

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

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

Question 59

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 60

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

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

Question 61

Under a defined contribution plan,ERISA requires that a fiduciary be named.List the responsibilities of the fiduciary (Defined Contribution Plans)

Question 62

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