Exam 18: Pension Funds

IRAs are

If you are terminated before you are fully vested in an employer-sponsored plan,you may not get to keep previous contributions to your pension made by your employer.

Congratulations,you have just been employed! You now have a choice between a flat benefit at retirement equal to $4,000 times your years of service,or a career average formula of 3.50 percent of your average salary times your years of service. You expect to work 40 years. At what average salary would you be indifferent between the two alternatives?

An employee contributes 6 percent of her salary to her 401(k)plan and her employer contributes another $1,900. The employee earns $75,000 and is in a 28 percent tax bracket. If the employee earns 8.50 percent on all funds invested each year and her salary does not change,how much will she have in her account in 20 years?

In recent years defined contribution plans have grown faster than defined benefit plans in which of the following areas? I. Fund assets II. Number of funds III. Number of plan participants

The PBGC I. insures participants of defined benefit plans if plan funds are insufficient to meet contractual pension obligations. II. insures participants of defined contribution plans if investment returns are insufficient to meet expected pension obligations. III. regulates day-to-day pension fund operations.

Why do insured pension plans invest in less risky assets than uninsured pension plans?

A country where the link between public pension benefits and amounts paid in is weak is

A defined benefit pension plan expects to pay out $25 million per year over the next 10 years to pensioners. The fund currently has $155 million in pension assets that are earning 10 percent per year. This plan is underfunded.

Which of the following is/are true about a Roth IRA? I. Contributions are tax deductible. II. Withdrawals after retirement are not taxed. III. You must begin withdrawals at age 70½. IV. Employers match contributions. V. They are only available to individuals earning less than $50,000,or households earning less than $90,000.

Noninsured pension plans generally invest in riskier assets than insured pension plans.

In a defined benefit plan,the retirement benefit will vary according to rates of return on pension fund reserves.

The main advantage of a profit sharing Keogh plan over a money sharing Keogh plan is that profit sharing plans

Which of the following statements about 401(k)plans are true? I. They are defined benefit plans. II. They allow employer and employee contributions. III. Earnings accrue tax-free during the employee's working years. IV. They allow employee discretion in asset allocation. V. They always have minimum guaranteed rates of return.

Assets in 401(k)plans are now greater than assets in private defined benefit plans.

Vesting refers to

A retirement account specifically designed for self-employed persons is a

In terms of assets managed and numbers of plans,defined contribution plans are becoming more predominant and defined benefit plans are declining.

A defined benefit pension plan has expected payouts of $15 million per year for eight years and then $20 million per year over the following 15 years. Actuaries have estimated that the fund can be expected to earn an average of 5.25 percent on its assets. The fund currently has reserves of $185,475,000. The plan is ___________ by about ___________ million.

An employee who has worked for his firm for 30 years can retire right now and receive a constant annual benefit of $45,000. He has a final pay plan that pays his average salary over his final five years times 2 percent times years of service. He has decided he will keep working five more years but only if by doing so his retirement benefits will grow at 6 percent per year. How much would his expected average salary (to the nearest dollar)have to be over the next five years to keep him working?