Exam 18: Pension Funds

An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA,her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65,she believes she will be in a 28 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,000 per year,but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent? She will withdraw all her money upon retirement and may owe taxes then,depending on the type of IRA chosen.

The Pension Protection Act of 2006 requires companies to correct funding shortfalls in their defined benefit plans within

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.

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

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.

Why do employees increasingly prefer defined contribution plans to defined benefit plans?

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

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.

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.

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.

Employee plus employer contributions to a 401(k)are $15,000 per year. Equity funds are earning 15 percent,bond funds 8 percent,and money market funds 6 percent. The employee wants to retire as soon as possible with $1 million in retirement assets. If he puts 50 percent of his money in stocks,30 percent in bonds,and 20 percent in money funds,how long until he can expect to retire?

Of the different types of defined benefit plans,plans using the final pay method will usually produce the biggest retirement benefit to employees.

Social Security is a:

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

A Keogh plan is designed for self-employed individuals.

An employee contributes 9 percent of his salary to his 401(k)plan and the employer matches with 40 percent of the first 6 percent of the employee's salary. The employee earns $90,000 and is in a 28 percent tax bracket. If the employee earns 10 percent on the plan investments,what is his one-year rate of return relative to the net amount of money he invested?

In general terms,which one of the following plan types is the riskiest for an employee on a year-to-year basis?

Which of the following statements are true about a traditional IRA? I. Subject to an income limit,in 2016 a single person could contribute up to $5,500 per year ($6,500 if over 50 years old)of pretax income to an IRA. II. All withdrawals are tax-free. III. Earnings on the IRA account are not taxed until withdrawn. IV. You must begin withdrawals at age 59½. V. Withdrawal(s)can be a lump sum or installments.

You are 30-years old and you make $110,000 per year. You calculate that you cannot retire until you have accumulated a lump sum amount of $2,000,000 to live on after retirement. You contribute 6 percent of your salary to your 401(k)and your employer contributes 3 percent of your salary. You plan on investing 65 percent of your funds in equities on which you expect to earn an average rate of return of 10 percent,and the rest in bonds projected to earn 5 percent. If your salary does not grow,how old will you be when you can retire?

Under ERISA the maximum time period allowed for vesting is ________ years.