Question 1

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 A

Question 2

ACME Company is considering starting a retirement plan for its employees.One option ACME is considering is a profit-sharing plan.All of the following are advantages of this type of retirement plan EXCEPT

Accepted Answer

A)  The employer's cost is not affected by the age and the number of employees.
B)  Profit sharing plans provide an incentive for employees to work harder and more efficiently.
C)  The 10 percent penalty tax does not apply to distributions prior to age 59.5.
D)  ACME enjoys greater flexibility in employer contributions. C

Question 3

Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan,and 100 of these employees are considered highly compensated.All of the highly compensated employees are covered by the plan.What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test?

Accepted Answer

A)  500
B)  630
C)  667
D)  900 B

Question 4

All of the following statements about 403(b)plans are correct 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.

Question 5

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 6

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 7

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 8

Lynn works for a state university.In addition to her regular pension plan,Lynn established another retirement savings plan.She elected to have $5,000 of her salary withheld and contributed to a tax-sheltered annuity with an insurer.The type of plan that Lynn established is called a

Accepted Answer

A)  SIMPLE plan.
B)  403(b) plan.
C)  defined benefit plan.
D)  Keogh plan.

Question 9

RST Company offers a qualified retirement plan.Each employee contributes 4 percent of his or her pretax income to the plan,and RST matches each 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

Question 10

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.The early retirement age is the earliest age at which an employee can retire without receiving actuarially reduced benefits.

Accepted Answer

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

Question 11

ABC Company offers a qualified retirement plan.ABC selected a funding instrument with an insurer in which the insurer guarantees a relatively high interest rate for a number of years on a lump sum deposit.This funding instrument is called a(n)

Accepted Answer

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

Question 12

Which of the following statements is (are)true with respect to profit-sharing plans?
I.There is no limit on the amount that an employer can contribute annually to an employee's account under a profit sharing plan.
II.Profit sharing plans offer greater funding flexibility for employers than under other qualified plans.

Accepted Answer

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

Question 13

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 14

Which of the following statements is (are)true regarding cash-balance pension plans?
I.Cash balance plans are defined contribution plans.
II.Under a cash balance plan,the employer creates an actual account for each employee into which the employer makes contributions and allocates investment gains and losses.

Accepted Answer

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

Question 15

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)  pension agency.
C)  funding instrument.
D)  funding agency.

Question 16

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

Question 17

Early distributions from qualified retirement plans are assessed a 10 percent penalty tax.However,there are some exceptions to this rule.All of the following distributions would be exempt from the penalty tax EXCEPT

Accepted Answer

A)  distributions made after age 59.5.
B)  distributions made when an employee of any age changes employers.
C)  distributions made after the death or permanent disability of the employee.
D)  distributions that are part of a series of substantially equal payments over the worker's life expectancy.

Question 18

Which of the following statements about retirement benefits under pension plans is true?

Accepted Answer

A)  Under a flat percentage of annual earnings defined benefit formula,each employee receives the same dollar benefit.
B)  A benefit using final pay is usually based on an employee's earnings during the last month of plan participation.
C)  A unit-benefit formula considers both earnings and years of service.
D)  Past service benefits are the result of bonuses and overtime pay during the period an employee participated in the plan.

Question 19

Which of the following distributions from a qualified retirement plan would be exempt from the 10 percent penalty tax if the distribution occurred before the covered employee was age 59.5?
I.A distribution made to an employee with a qualifying disability.
II.A distribution made to a beneficiary or to the employee estate's after the employee's death.

Accepted Answer

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

Question 20

All the following statements about SIMPLE retirement plans are true EXCEPT

Accepted Answer

A)  They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan.
B)  They encourage small employers to establish pension plans for their employees.
C)  They are subject to more stringent discrimination rules than those that apply to most qualified plans.
D)  They can be structured either as an IRA or as a 401(k) plan.

Exam 17: Employee Benefits: Retirement Plans

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.

ACME Company is considering starting a retirement plan for its employees.One option ACME is considering is a profit-sharing plan.All of the following are advantages of this type of retirement plan EXCEPT

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

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.

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

Lynn works for a state university.In addition to her regular pension plan,Lynn established another retirement savings plan.She elected to have $5,000 of her salary withheld and contributed to a tax-sheltered annuity with an insurer.The type of plan that Lynn established is called a

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.The early retirement age is the earliest age at which an employee can retire without receiving actuarially reduced benefits.

ABC Company offers a qualified retirement plan.ABC selected a funding instrument with an insurer in which the insurer guarantees a relatively high interest rate for a number of years on a lump sum deposit.This funding instrument is called a(n)

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

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

Early distributions from qualified retirement plans are assessed a 10 percent penalty tax.However,there are some exceptions to this rule.All of the following distributions would be exempt from the penalty tax EXCEPT

Which of the following statements about retirement benefits under pension plans is true?

All the following statements about SIMPLE retirement plans are true EXCEPT