Question 1

Which of the following statements regarding minimum vesting standards for qualified defined benefit plans is (are) true?
I. The vesting standards apply to both employer and employee retirement contributions.
II.Employers may vest benefits more quickly than the minimum standards .

Accepted Answer

The answer of Which of the following statements regarding minimum...

Question 2

Which of the following statements about tax-deferred retirement plans in the U.S. is true?
I.Women, on average, receive lower employment-based retirement income than men.
II.One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments.

Accepted Answer

Statement I is true based on statistics that show women earn less than men and are more likely to take time off from work for caregiving. This often translates into lower retirement savings and benefits. Statement II is false as fixed-income investments are typically more vulnerable to inflation than other types of investments. A better strategy to hedge against inflation might be to invest in a diversified portfolio of stocks, real estate, and other assets.

Question 3

The tax credit available through the Saver's Credit is equal to

Accepted Answer

The tax credit available through the Saver's Credit is a percentage of the contribution made to a traditional IRA, Roth IRA, 401-k, SIMPLE plan, or 403(b) plan. The percentage varies depending on the taxpayer's income level and tax-filing status.

Question 4

Winslow Corporation has many long-term employees. The company has never had a pension plan. Recently, a new management team was hired. The new president said he would like to start a pension plan through which he could reward the long-term service provided by many employees. Which of the following types of plans should Winslow Corporation adopt?

Accepted Answer

A defined benefit plan is the best choice for Winslow Corporation because it is designed to provide retirement benefits based on a formula that takes into account factors such as an employee's salary and length of service. This type of plan is ideal for rewarding long-term employees, as it provides a guaranteed retirement benefit that becomes more valuable as an employee's tenure increases. The other options (403(b), 401(k), and money-purchase plans) are all defined contribution plans, meaning that the employee contributes money to their own account, which is then invested to provide retirement income. These plans don't guarantee a set level of retirement income, so they may not be as effective at rewarding long-term employees as a defined benefit plan would be.

Question 5

In the context of employee benefits, the term "discrimination" refers to benefit comparisons between

Accepted Answer

Discrimination in employee benefits refers to providing unequal benefits to different groups of employees based on their status. In this context, it often refers to the difference in benefits provided to highly compensated employees and non-highly compensated employees. Providing better benefits to highly compensated employees can sometimes be seen as discriminatory because it favors the wealthier employees over the less wealthy ones. This type of discrimination is generally illegal under ERISA (the Employee Retirement Income Security Act). Discrimination based on gender or race is also illegal under other laws, such as Title VII of the Civil Rights Act, but it is not specific to employee benefits. Retiree benefits are a separate issue, and may be subject to different rules than benefits for current employees. Similarly, providing benefits to under-represented groups is also a separate issue and may be addressed under other laws, such as affirmative action programs.

Question 6

Which of the following statements about Roth 401(k) plans is true?
I.Contributions to a Roth 401(k) plan are made with before-tax dollars.
II.Qualified distributions from a Roth 401(k) are received income-tax free.

Accepted Answer

Statement I is false as contributions to a Roth 401(k) plan are made with after-tax dollars. Statement II is true as qualified distributions from a Roth 401(k) are received income-tax free, as long as certain criteria are met (such as the account being open for at least 5 years and the individual being over age 59 1/2). Therefore, only choice B is correct.

Question 7

Under one type of retirement plan for small businesses, the employer contributes to an IRA established for each eligible employee. Under this type of plan, the contribution limits are significantly higher than they are for traditional IRAs and Roth IRAs. This type of plan, which requires little paperwork, is called a

Accepted Answer

The description matches that of a simplified employee pension (SEP) plan, which allows employers to contribute to an IRA established for each eligible employee. This type of plan has higher contribution limits and is easy to set up and maintain, making it a popular choice for small businesses. Keogh plans and defined benefit plans are more complex and typically require more paperwork, while a 403(b) plan is designed for employees of non-profit organizations and public schools.

Question 8

Which statement is true with regard to problems and issues with tax-deferred retirement plans in the United States?

Accepted Answer

Inadequate participation in employer-sponsored retirement plans can create economic insecurity for retired employees. This is a known issue with tax-deferred retirement plans in the US, as many workers either do not have access to such plans or do not participate in them, leaving them without adequate savings for retirement.

Question 9

To encourage low- to moderate-income workers to save for retirement, a tax credit called the Saver's Credit is available. Which statement about tax credits and tax deductions is true?

Accepted Answer

Tax credits are more favorable than tax deductions because they reduce taxes owed on a dollar-for-dollar basis. In contrast, tax deductions reduce taxable income, which ultimately reduces the amount of tax owed, but not on a dollar-for-dollar basis. Therefore, option B is correct. Option A is incorrect because tax deductions are not necessarily more favorable than tax credits for most taxpayers. Option C is incorrect because tax credits do not reduce taxable income. Option D is incorrect because tax deductions do not reduce taxes owed on a dollar-for-dollar basis.

Question 10

Which of the following is a common investment mistake that many retirement plan participants make?

Accepted Answer

Investing too heavily in common stock when close to retirement is a common mistake because it increases the risk of loss if the stock market declines. As individuals near retirement, they typically want to shift their investments to more conservative options to protect their savings.

Quiz 17: Employee Benefits: Retirement Plans

Which of the following statements regarding minimum vesting standards for qualified defined benefit plans is (are) true? I. The vesting standards apply to both employer and employee retirement contributions. II.Employers may vest benefits more quickly than the minimum standards .

Which of the following statements about tax-deferred retirement plans in the U.S. is true? I.Women, on average, receive lower employment-based retirement income than men. II.One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments.

The tax credit available through the Saver's Credit is equal to

In the context of employee benefits, the term "discrimination" refers to benefit comparisons between

Which of the following statements about Roth 401(k) plans is true? I.Contributions to a Roth 401(k) plan are made with before-tax dollars. II.Qualified distributions from a Roth 401(k) are received income-tax free.

Which statement is true with regard to problems and issues with tax-deferred retirement plans in the United States?

To encourage low- to moderate-income workers to save for retirement, a tax credit called the Saver's Credit is available. Which statement about tax credits and tax deductions is true?

Which of the following is a common investment mistake that many retirement plan participants make?