Question 1

Defined-benefit pension plans are ________ for the plan sponsor to administer and are not portable from one job to another by employees in ________.

Accepted Answer

A)  manageable; a decreasingly mobile workforce 
B)  manageable; increasingly mobile workforce 
C)  cumbersome; decreasingly mobile workforce 
D)  cumbersome; an increasingly mobile workforce. 
A)  manageable; a decreasingly mobile workforce 
B)  manageable; increasingly mobile workforce 
C)  cumbersome; decreasingly mobile workforce 
D)  cumbersome; an increasingly mobile workforce.

Question 2

The key factor in explaining ________ growth is that the employer's contributions and a specified amount of the employee's contributions, as well as the earnings of the fund's assets, are tax exempt.

Accepted Answer

A)  health benefit 
B)  pension fund 
C)  dividend 
D)  capital gains 
A)  health benefit 
B)  pension fund 
C)  dividend 
D)  capital gains

Question 3

A major change of the Pension Fund Protection Act of 2006 required underfunded plans to pay additional premiums to the Pension Benefit Guaranty Corporation (PBGC).

Accepted Answer

A) True 
 B)False

Question 4

Which of the below is NOT a type of pension plan?

Accepted Answer

A)  defined-benefit plans 
B)  defined-contribution plans 
C)  defined-balance plans 
D)  cash balance plan 
A)  defined-benefit plans 
B)  defined-contribution plans 
C)  defined-balance plans 
D)  cash balance plan

Question 5

Explain the difference between a defined-benefit pension plan and a defined-contribution pension plan.

Accepted Answer

In a defined-benefit plan, the plan spon

Question 6

The Pension Protection Act of 2006 (PPA) provides ________.

Accepted Answer

A)  significant changes in the operations of private pension plans. 
B)  insignificant changes in the operations of public pension plans. 
C)  reduces some tax incentives for retirement savings. 
D)  reduces all tax incentives for retirement savings. 
A)  significant changes in the operations of private pension plans. 
B)  insignificant changes in the operations of public pension plans. 
C)  reduces some tax incentives for retirement savings. 
D)  reduces all tax incentives for retirement savings.

Question 7

The defined-contribution pension plan is a new hybrid plan that combines features of the defined-benefit plan and the defined-contribution plan.

Accepted Answer

A) True 
 B)False

Question 8

Which of the below statements is TRUE?

Accepted Answer

A)  An insured plan is always safer than a noninsured plan. 
B)  A federal agency, the Pension Benefit Guaranty Corporation (PBG
C)  does not insure the vested benefits of participants. 
C)  Defined benefit plans that are guaranteed by life insurance products are called insured benefit plans. 
D)  A plan sponsor establishing a defined-benefit plan cannot use the payments made into the fund to purchase an annuity policy from a life insurance company. 
A)  An insured plan is always safer than a noninsured plan. 
B)  A federal agency, the Pension Benefit Guaranty Corporation (PBG
C)  does not insure the vested benefits of participants. 
C)  Defined benefit plans that are guaranteed by life insurance products are called insured benefit plans. 
D)  A plan sponsor establishing a defined-benefit plan cannot use the payments made into the fund to purchase an annuity policy from a life insurance company.

Question 9

ERISA established fiduciary standards for pension fund trustees, managers, and advisors. Specifically, all parties responsible for the management of a pension fund are guided by the judgment of what is called a "wild man" in seeking to determine which investments are proper.

Accepted Answer

A) True 
 B)False

Question 10

The Pension Protection Act of 2006 (PPA) contains two major parts. Describe these two parts.

Accepted Answer

The PPA provides significant changes in

Question 11

Which of the below statements is TRUE?

Accepted Answer

A)  Insurance companies have not been involved in the pension business through their issuance of GICs and annuities or through subsidiaries. 
B)  The trust departments of commercial banks do not manage pension funds. 
C)  Foreign entities are permitted to participate in the management of pension funds. 
D)  A very large number of foreign financial institutions have acquired interests in U.S. bond management firms in order to enter the pension fund money management business. 
A)  Insurance companies have not been involved in the pension business through their issuance of GICs and annuities or through subsidiaries. 
B)  The trust departments of commercial banks do not manage pension funds. 
C)  Foreign entities are permitted to participate in the management of pension funds. 
D)  A very large number of foreign financial institutions have acquired interests in U.S. bond management firms in order to enter the pension fund money management business.

Question 12

Regulations issued by the U.S. Department of Labor require firms to offer their employees a set of distinctive choices, a development that has encouraged pension plans to avoid mutual funds as the investment vehicle of choice.

Accepted Answer

A) True 
 B)False

Question 13

There are several fundamental differences between defined-benefit plans and defined-contribution plans. In the defined-benefit plan, the plan sponsor does which of the following?

Accepted Answer

A)  The sponsor does not guarantee the retirement benefit 
B)  The sponsor does not make the investment choices 
C)  The sponsor bears the investment risk if the investments earn enough to fund the guaranteed retirement benefits. 
D)  The sponsor bears the investment risk if the investments do not earn enough to fund the guaranteed retirement benefits. 
A)  The sponsor does not guarantee the retirement benefit 
B)  The sponsor does not make the investment choices 
C)  The sponsor bears the investment risk if the investments earn enough to fund the guaranteed retirement benefits. 
D)  The sponsor bears the investment risk if the investments do not earn enough to fund the guaranteed retirement benefits.

Question 14

A ________ is similar to some types of defined-contribution plans, particularly money purchase plans and profit sharing plans, according to which the employer contributes at a fixed rate but does not guarantee benefit.

Accepted Answer

A)  cash balance plan 
B)  managerial balance plan 
C)  defined-contribution plans 
D)  defined-balance plans 
A)  cash balance plan 
B)  managerial balance plan 
C)  defined-contribution plans 
D)  defined-balance plans

Question 15

In a qualified pension plan, contributions (up to some extent) and earnings thereof are tax-exempt.

Accepted Answer

A) True 
 B)False

Question 16

Qualified pension plans ________ invest in tax-exempt assets.

Accepted Answer

A)  rarely 
B)  never 
C)  often 
D)  always 
A)  rarely 
B)  never 
C)  often 
D)  always

Question 17

A study by Zion and Carcache of Credit Suisse First Boston estimated that if the companies included in the Standard & Poor's 500 index had replaced the ROA projections for their pension plans with the plans' actual performance, the companies' aggregate reported earnings would have ________.

Accepted Answer

A)  increased greatly. 
B)  increased moderately. 
C)  declined. 
D)  remained the same. 
A)  increased greatly. 
B)  increased moderately. 
C)  declined. 
D)  remained the same.

Question 18

Defined-contribution pension plans come in several legal forms: 401(k) plans, money purchase pension plans, and employee stock ownership plans (ESOPs).

Accepted Answer

A) True 
 B)False

Question 19

Pension funds have become important because ________.

Accepted Answer

A)  income and wealth have declined steadily over the post-World War II period, leaving households less money for long-term savings. 
B)  people are living longer and can expect less financial needs for longer retirement periods. 
C)  pensions represent compensation to employees that is free of tax liability to the employee until after the workers retire and their income from employment ceases. 
D)  employer contributions are not tax deductible to the employer. 
A)  income and wealth have declined steadily over the post-World War II period, leaving households less money for long-term savings. 
B)  people are living longer and can expect less financial needs for longer retirement periods. 
C)  pensions represent compensation to employees that is free of tax liability to the employee until after the workers retire and their income from employment ceases. 
D)  employer contributions are not tax deductible to the employer.

Question 20

Pension plan sponsors may be private business entities acting for their employees; federal, state, and local entities on behalf of their employees; unions on behalf of their members; and individuals for themselves.

Accepted Answer

A) True 
 B)False

Exam 8: Pension Funds

Defined-benefit pension plans are ________ for the plan sponsor to administer and are not portable from one job to another by employees in ________.

The key factor in explaining ________ growth is that the employer's contributions and a specified amount of the employee's contributions, as well as the earnings of the fund's assets, are tax exempt.

A major change of the Pension Fund Protection Act of 2006 required underfunded plans to pay additional premiums to the Pension Benefit Guaranty Corporation (PBGC).

Which of the below is NOT a type of pension plan?

Explain the difference between a defined-benefit pension plan and a defined-contribution pension plan.

The Pension Protection Act of 2006 (PPA) provides ________.

The defined-contribution pension plan is a new hybrid plan that combines features of the defined-benefit plan and the defined-contribution plan.

Which of the below statements is TRUE?

ERISA established fiduciary standards for pension fund trustees, managers, and advisors. Specifically, all parties responsible for the management of a pension fund are guided by the judgment of what is called a "wild man" in seeking to determine which investments are proper.

The Pension Protection Act of 2006 (PPA) contains two major parts. Describe these two parts.

Which of the below statements is TRUE?

Regulations issued by the U.S. Department of Labor require firms to offer their employees a set of distinctive choices, a development that has encouraged pension plans to avoid mutual funds as the investment vehicle of choice.

There are several fundamental differences between defined-benefit plans and defined-contribution plans. In the defined-benefit plan, the plan sponsor does which of the following?

A ________ is similar to some types of defined-contribution plans, particularly money purchase plans and profit sharing plans, according to which the employer contributes at a fixed rate but does not guarantee benefit.

In a qualified pension plan, contributions (up to some extent) and earnings thereof are tax-exempt.

Qualified pension plans ________ invest in tax-exempt assets.

A study by Zion and Carcache of Credit Suisse First Boston estimated that if the companies included in the Standard & Poor's 500 index had replaced the ROA projections for their pension plans with the plans' actual performance, the companies' aggregate reported earnings would have ________.

Defined-contribution pension plans come in several legal forms: 401(k) plans, money purchase pension plans, and employee stock ownership plans (ESOPs).

Pension funds have become important because ________.

Pension plan sponsors may be private business entities acting for their employees; federal, state, and local entities on behalf of their employees; unions on behalf of their members; and individuals for themselves.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

Defined-benefit pension plans are for the plan sponsor to administer and are not portable from one job to another by employees in .