Question 1

For a long-term employee who is covered by a defined benefit plan, the highest retirement income will be obtained if his/her retirement income is based on

Accepted Answer

A)  initial average pay. 
B)  random year annual pay. 
C)  career-average pay. 
D)  final average pay. 
A)  initial average pay. 
B)  random year annual pay. 
C)  career-average pay. 
D)  final average pay.

Question 2

Which of the following statements about pension funding agencies and funding instruments is true?

Accepted Answer

A)  Under a trust-fund plan, individual annuities are purchased each year for employees participating in the plan. 
B)  A separate investment account is a group pension account with a life insurance company. 
C)  If the funding instrument is a commercial bank, the plan is called an insured plan. 
D)  Under a guaranteed investment contract, the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate. 
A)  Under a trust-fund plan, individual annuities are purchased each year for employees participating in the plan. 
B)  A separate investment account is a group pension account with a life insurance company. 
C)  If the funding instrument is a commercial bank, the plan is called an insured plan. 
D)  Under a guaranteed investment contract, the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate.

Question 3

Which of the following statements concerning retirement plans for the self-employed is true?
I. They can be used by owners of incorporated businesses only.
II. With certain exceptions, the same rules that apply to qualified corporate plans apply to retirement plans for the self-employed.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 4

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

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 5

Small business owners have a number of retirement plans available to them. One type of plan is limited to employers with 100 or fewer eligible employees. Under this type of plan, small employers are exempt from most of the nondiscrimination and administrative rules that apply to qualified plans. Such plans are called

Accepted Answer

A)  Keogh plans. 
B)  SIMPLE retirement plans. 
C)  cash balance plans. 
D)  profit sharing plans. 
A)  Keogh plans. 
B)  SIMPLE retirement plans. 
C)  cash balance plans. 
D)  profit sharing plans.

Question 6

All the following statements concerning a Roth 401(k) plan are true EXCEPT

Accepted Answer

A)  After-tax dollars are used to fund the plan. 
B)  Investment earnings accumulate on a tax-free basis. 
C)  Employees at all income levels may contribute to the plan, but annual contributions are limited. 
D)  Qualified distributions at retirement are fully taxable. 
A)  After-tax dollars are used to fund the plan. 
B)  Investment earnings accumulate on a tax-free basis. 
C)  Employees at all income levels may contribute to the plan, but annual contributions are limited. 
D)  Qualified distributions at retirement are fully taxable.

Question 7

Under a 401(k) plan, what is compared to determine if the plan unfairly discriminates in favor of highly compensated employees?

Accepted Answer

A)  the average percentage of salary made available to the highly compensated to defer is compared to the average percentage of salary made available to other eligible employees to defer 
B)  the ratio of eligible highly compensated employees is compared to the ratio of eligible other employees 
C)  the average percentage of salary deferred by the highly compensated is compared to the average percentage of salary deferred by other eligible employees 
D)  the percentage of highly compensated employees over age 50 who participate is compared to the percentage of all other employees who participate 
A)  the average percentage of salary made available to the highly compensated to defer is compared to the average percentage of salary made available to other eligible employees to defer 
B)  the ratio of eligible highly compensated employees is compared to the ratio of eligible other employees 
C)  the average percentage of salary deferred by the highly compensated is compared to the average percentage of salary deferred by other eligible employees 
D)  the percentage of highly compensated employees over age 50 who participate is compared to the percentage of all other employees who participate

Question 8

Which of the following statements about SIMPLE retirement plans is true?

Accepted Answer

A)  They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan. 
B)  Employees are not permitted to make SIMPLE plan contributions. 
C)  Employers are subject to more stringent nondiscrimination rules than those that apply to most qualified plans. 
D)  Employer contributions are fully taxable in the year of the contribution, but qualified distributions are received tax-free. 
A)  They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan. 
B)  Employees are not permitted to make SIMPLE plan contributions. 
C)  Employers are subject to more stringent nondiscrimination rules than those that apply to most qualified plans. 
D)  Employer contributions are fully taxable in the year of the contribution, but qualified distributions are received tax-free.

Question 9

Which of the following statements is (are) true with respect to SIMPLE retirement plans?
I.Only large employers can start a SIMPLE plan, provided the employer does not maintain another qualified plan.
II.SIMPLE plans are exempt from most nondiscrimination and administrative rules that apply to qualified plans.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 10

ABC Company offers a qualified retirement plan. ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit. This funding instrument is called a

Accepted Answer

A)  trust-fund plan. 
B)  group deferred annuity. 
C)  separate investment account. 
D)  guaranteed investment contract. 
A)  trust-fund plan. 
B)  group deferred annuity. 
C)  separate investment account. 
D)  guaranteed investment contract.

Question 11

Special vesting rules apply to qualified defined contribution plans with voluntary employee contributions and matching employer contributions. Which of the following statements is (are) true with respect to these vesting rules?
I.Employer contributions must vest immediately.
II.Graded vesting is permitted, and employer contributions must be 20 percent vested after 2 years, with an additional 20 percent vested in each of the next 4 years.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 12

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

A)  Tax deductions are more favorable than tax credit for most taxpayers. 
B)  Tax credits reduce taxes owed on a dollar-for-dollar basis. 
C)  Tax credits reduce taxable income. 
D)  Tax deductions reduce taxes owed on a dollar-for-dollar basis. 
A)  Tax deductions are more favorable than tax credit for most taxpayers. 
B)  Tax credits reduce taxes owed on a dollar-for-dollar basis. 
C)  Tax credits reduce taxable income. 
D)  Tax deductions reduce taxes owed on a dollar-for-dollar basis.

Question 13

JKL Company just converted its traditional defined-benefit plan to another type of plan. Under the plan, benefits are defined in terms of a hypothetical account balance, with retirement benefits dependent upon the value of the participant's account at retirement. Each year, employees receive an interest rate credit and a pay credit which is a specified percentage of compensation. This type of plan is called a

Accepted Answer

A)  section 401(k) plan. 
B)  deposit-administration plan. 
C)  cash-balance plan. 
D)  trust fund plan. 
A)  section 401(k) plan. 
B)  deposit-administration plan. 
C)  cash-balance plan. 
D)  trust fund plan.

Question 14

All of the following statements about 403(b) plans are true EXCEPT

Accepted Answer

A)  Contributions to a 403(b) reduce an employee's taxable income. 
B)  403(b) plans are designed for employees of public school systems and tax-exempt organizations. 
C)  The law limits the amount of income that an employee can elect to defer under a 403(b) plan. 
D)  Matching employer contributions are not permitted under a 403(b) plan. 
A)  Contributions to a 403(b) reduce an employee's taxable income. 
B)  403(b) plans are designed for employees of public school systems and tax-exempt organizations. 
C)  The law limits the amount of income that an employee can elect to defer under a 403(b) plan. 
D)  Matching employer contributions are not permitted under a 403(b) plan.

Question 15

RST Company offers a qualified retirement plan. Each employee contributes 4 percent of his or her pretax income to the plan, and RST matches the employee's contribution. An employee's benefit at retirement is determined by his or her account balance at the time of retirement. What type of retirement plan does RST offer?

Accepted Answer

A)  defined benefit, flat percentage of annual earnings 
B)  defined benefit, flat dollar amount for all employees 
C)  defined benefit, unit-credit formula 
D)  defined contribution money purchase plan 
A)  defined benefit, flat percentage of annual earnings 
B)  defined benefit, flat dollar amount for all employees 
C)  defined benefit, unit-credit formula 
D)  defined contribution money purchase plan

Question 16

Which of the following statements about retirement ages in defined benefit pension plans is (are) true?
I.The normal retirement age in most plans is 65.
II.For a defined benefit plan, the early retirement age is the earliest age an employee can retire with full, unreduced benefits.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 17

Which of the following statements is true with regard to defined benefit and defined contribution pension plans?

Accepted Answer

A)  It's easier for an employer to determine its annual pension contribution under a defined benefit plan than under a defined contribution plan. 
B)  When a new pension plan is installed, it's more beneficial for older workers if it's a defined contribution plan rather than a defined benefit plan. 
C)  The employer bears the investment risk under a defined contribution plan, and the employee bears the investment risk under a defined benefit plan. 
D)  With a defined benefit plan, the retirement benefit is known is advance but the contributions vary; with a defined contribution plan, the contribution rate is fixed but the retirement benefit varies. 
A)  It's easier for an employer to determine its annual pension contribution under a defined benefit plan than under a defined contribution plan. 
B)  When a new pension plan is installed, it's more beneficial for older workers if it's a defined contribution plan rather than a defined benefit plan. 
C)  The employer bears the investment risk under a defined contribution plan, and the employee bears the investment risk under a defined benefit plan. 
D)  With a defined benefit plan, the retirement benefit is known is advance but the contributions vary; with a defined contribution plan, the contribution rate is fixed but the retirement benefit varies.

Question 18

Which of the following statements concerning defined contribution pension plans is (are) true?
I.The contribution rate is fixed.
II. The retirement benefit varies.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 19

Which of the following statements concerning defined-benefit pension plans is (are) true?
I.The contribution rate by the employer varies from year to year.
II. The retirement benefit is not known in advance.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 20

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

Accepted Answer

A)  male and female employees. 
B)  current employees and retirees. 
C)  highly compensated employees and non-highly compensated employees. 
D)  members of an under-represented group (by religious preference, race, or national origin) and the majority of employees. 
A)  male and female employees. 
B)  current employees and retirees. 
C)  highly compensated employees and non-highly compensated employees. 
D)  members of an under-represented group (by religious preference, race, or national origin) and the majority of employees.

Exam 17: Employee Benefits: Retirement Plans

For a long-term employee who is covered by a defined benefit plan, the highest retirement income will be obtained if his/her retirement income is based on

Which of the following statements about pension funding agencies and funding instruments is true?

Which of the following statements concerning retirement plans for the self-employed is true? I. They can be used by owners of incorporated businesses only. II. With certain exceptions, the same rules that apply to qualified corporate plans apply to retirement plans for the self-employed.

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 .

All the following statements concerning a Roth 401(k) plan are true EXCEPT

Under a 401(k) plan, what is compared to determine if the plan unfairly discriminates in favor of highly compensated employees?

Which of the following statements about SIMPLE retirement plans is true?

ABC Company offers a qualified retirement plan. ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit. This funding instrument is called a

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?

All of the following statements about 403(b) plans are true EXCEPT

Which of the following statements about retirement ages in defined benefit pension plans is (are) true? I.The normal retirement age in most plans is 65. II.For a defined benefit plan, the early retirement age is the earliest age an employee can retire with full, unreduced benefits.

Which of the following statements is true with regard to defined benefit and defined contribution pension plans?

Which of the following statements concerning defined contribution pension plans is (are) true? I.The contribution rate is fixed. II. The retirement benefit varies.

Which of the following statements concerning defined-benefit pension plans is (are) true? I.The contribution rate by the employer varies from year to year. II. The retirement benefit is not known in advance.

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

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Enterprise Risk Management and Related Topics

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Social Insurance

The Liability Risk

Auto Insurance

Auto Insurance (continued)

Homeowners Insurance, Section I

Homeowners Insurance, Section II

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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