Exam 18: Pension Funds

Most state and local pension funds are underfunded.

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

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?

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

At your new job you estimate that your average salary over your working years will be $95,000 per year. How many more years would you have to work to receive as much benefit from a flat benefit of $3,000 times years of service as you would receive from 3.75 percent of your average salary times years of service?

A(n)________ plan does not require the employer to guarantee retirement benefits nor to maintain a minimum level of pension reserves.

What is the main asset held by private pension funds?

A country where the link between public pension benefits and amount of taxes paid in is weak is

Social Security began running a deficit for the first time in what year?

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

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.

Vesting refers to

Private pension funds are funds administered by I. the federal government. II. state and local governments. III. insurance companies. IV. banks and mutual funds .

A 55-year-old has just changed jobs and has a choice between a defined benefit plan [final pay] and a defined contribution plan. He will work for 10 more years. What should he consider in making his decision?

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

Suppose that a corporate defined benefit plan had decided it will keep pension fund reserves equal to the present value of expected future pension benefits to be fully funded. The plan has expected payouts of $12 million per year for 15 years and then $22 million per year for the subsequent 10 years. All payments are at year-end. At the current 5.75 percent rate of return on the plan's assets,the plan is currently fully funded. If the plan can increase the proportion of stock investments the fund holds and raise the expected rate of return to 8.00 percent,how many dollars of pension assets can be freed up by the corporation?

What are the main provisions of ERISA?

You want to have $1,200,000 when you retire and you are in a defined contribution plan. You can earn 9 percent per year on the money invested and you will retire in 25 years. Your employer also contributes to your plan. The employer will contribute 4 percent of what you put into the plan each year. How much do you have to contribute per year to meet your goal?

Pension plans administered by the federal government are called insured pension plans.

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 x 2 percent x 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?