Exam 17: Employee Benefits: Retirement Plans

Which of the following statements about the minimum vesting standards for a qualified defined benefit plan is (are) true? I.Under cliff vesting, an employee must be at least 50 percent vested after 5 years of service. II.Under graded vesting, an employee must be at least 20 percent vested after 3 years of service and 100 percent vested after 7 years.

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.

Which of the following statements about the protection provided by the Pension Benefit Guaranty Corporation is (are) true? I.Only defined benefit plans are insured. II.Only benefits that are not yet vested are guaranteed.

Rita went to work for a manufacturing company. The company offers a defined-benefit pension plan. The retirement benefit is equal to 1.5 percent multiplied by years of service with the company, and the result is multiplied by average salary in the three highest consecutive years of paid employment with the company. The benefit formula used at Rita's company is a

Which of the following statements about trust fund plans is (are) true? I.The trustee typically purchases annuities for retiring employees. II.The trustee guarantees the adequacy of the fund to pay the promised benefits.

A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a

Lynn works for a state university. In addition to the university's regular retirement plan, Lynn participates in another retirement savings plan. She elected to have $5,000 of her salary withheld and contributed to a tax-sheltered annuity with an insurer. The type of plan that Lynn established is called a

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

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?

Which of the following statements is (are) true with respect to profit-sharing plans? I.There is no limit on the amount that an employer can contribute annually to an employee's account under a profit sharing plan. II.Profit sharing plans offer greater funding flexibility for employers than under other qualified plans.

Which of the following distributions from a qualified retirement plan would be exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5? I.A distribution made to an employee with a qualifying disability. II.A distribution made to a beneficiary or to the employee estate's after the employee's death.

Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan, and 100 of these employees are considered highly compensated. All of the highly compensated employees are covered by the plan. What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test?

ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT

As Social Security slants benefits in favor of lower-paid workers, the Internal Revenue Code permits employers to adjust pension contributions so that the overall contributions (pension plus Social Security) are nondiscriminatory. This adjustment permits employers to increase pension contributions for highly-compensated employees. Adjusting contributions to consider Social Security contributions is called

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

Which of the following statements is (are) true regarding cash-balance pension plans? I.Cash balance plans are defined contribution plans. II.Under a cash balance plan, the employer creates an investment account for each employee into which the employer makes actual contributions and allocates investment gains and losses.

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

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?

What are the minimum age and service requirements that can be imposed on employees eligible to participate in a retirement plan?