Question 1

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.In 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

Question 2

Harrison Company just received notice from the Internal Revenue Service that there is a problem with its retirement plan.Because over 60 percent of the benefits are designated for highly compensated employees,a special set of rules apply.These rules require more rapid vesting for non-highly compensated employees and certain minimum benefits for non-highly compensated employees.What name is given to such plans?

Accepted Answer

A)  top-heavy plans
B)  top-hat plans
C)  golden handshake plans
D)  defined-benefit plans A

Question 3

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. C

Question 4

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.

Question 5

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

Accepted Answer

A)  simplified employee pension (SEP) plan.
B)  defined benefit plan.
C)  Keogh plan.
D)  403(b) plan.

Question 6

Which of the following statements about the tax implications of qualified pension plans is true?

Accepted Answer

A)  Investment income on plan assets is taxable in the year the investment income was earned.
B)  Employer contributions are deductible up to certain limits as an ordinary business expense.
C)  Employer contributions are considered taxable income to employees but are taxed at capital gains rates.
D)  Distributions from qualified pension plans are received tax-free by the retiree.

Question 7

As Social Security slants benefits in favor of lower-paid workers,the Internal Revenue Service 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

Accepted Answer

A)  prorating.
B)  indexing.
C)  offset.
D)  integration.

Question 8

Which of the following statements about withdrawals from Section 401(k)plans is (are)true?
I.The penalty tax does not apply to hardship withdrawals.
II.Withdrawals may be made without penalty at age 59.5 or older.

Accepted Answer

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

Question 9

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

Question 10

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

Accepted Answer

A)  age 18 and 6 months of service
B)  age 21 and 1 year of service
C)  age 21 and 3 years of service
D)  age 25 and 4 years of service

Question 11

Rita went to work for a manufacturing company.The company offers a defined-benefit pension plan.The benefit at retirement is equal to 1.5 percent multiplied by years of service with the company,with the result 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

Accepted Answer

A)  flat dollar amount for all employees.
B)  flat percentage of annual earnings.
C)  flat dollar amount for each year of service.
D)  unit-benefit formula.

Question 12

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.

Accepted Answer

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

Question 13

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.

Accepted Answer

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

Question 14

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.

Accepted Answer

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

Question 15

Which of the following statements is (are)true with respect to vesting under a qualified retirement plan?
I.Vesting helps to reduce labor turnover.
II.An employee who terminates employment after four years of service has no vested retirement benefit under graded vesting.

Accepted Answer

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

Question 16

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)  simplified employee pension (SEP) IRAs.

Question 17

Vesting refers to

Accepted Answer

A)  the employer's right to terminate contributions if a pension plan is adequately funded.
B)  the employer's right to recapture employee contributions to a pension plan if employment terminates prior to retirement.
C)  the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement.
D)  the employer's right to discriminate against non-highly compensated employees when determining pension benefit levels.

Question 18

Under a unit-benefit formula,benefits are a function of both

Accepted Answer

A)  earnings and years of service.
B)  age and earnings.
C)  age and gender.
D)  years of service and position within a firm.

Question 19

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.

Question 20

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

Accepted Answer

A)  trust fund.
B)  mutual fund.
C)  funding instrument.
D)  funding agency.

Exam 17: Employee Benefits: Retirement Plans

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.In a defined-benefit plan,the early retirement age is the earliest age an employee can retire with full,unreduced benefits.

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

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

Which of the following statements about the tax implications of qualified pension plans is true?

Which of the following statements about withdrawals from Section 401(k) plans is (are) true? I.The penalty tax does not apply to hardship withdrawals. II.Withdrawals may be made without penalty at age 59.5 or older.

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.

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

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.

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.

Which of the following statements is (are) true with respect to vesting under a qualified retirement plan? I.Vesting helps to reduce labor turnover. II.An employee who terminates employment after four years of service has no vested retirement benefit under graded vesting.

Vesting refers to

Under a unit-benefit formula,benefits are a function of both

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

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