Question 1

JKL Company just converted its traditional defined-benefit plan to another type of plan.Under the plan,benefits are defined in terms of a hypothetical account balance,with retirement benefits dependent upon the value of the participant's account at retirement.Each year,employees receive an interest rate credit and a pay credit which is a specified percentage of compensation.This type of plan is called a

Accepted Answer

A)  section 401(k) plan.
B)  deposit-administration plan.
C)  cash-balance plan.
D)  trust fund plan. C

Question 2

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)  401(k) plan.
D)  403(b) plan. A

Question 3

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 4

Which of the following statements about Roth 401(k)plans is true?
I.Contributions to a Roth 401(k)plan are made with before-tax dollars.
II.Qualified distributions from a Roth 401(k)are received income-tax free.

Accepted Answer

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

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

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 7

Under a 401(k)plan,what is compared to determine if the plan unfairly discriminates in favor of highly compensated employees?

Accepted Answer

A)  the average percentage of salary made available to the highly compensated to defer is compared to the average percentage of salary made available to other eligible employees to defer
B)  the ratio of eligible highly compensated employees is compared to the ratio of eligible other employees
C)  the average percentage of salary deferred by the highly compensated is compared to the average percentage of salary deferred by other eligible employees
D)  the percentage of highly compensated employees over age 50 who participate is compared to the percentage of all other employees who participate

Question 8

All of the following statements about 403(b)plans are true 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 9

Which of the following statements is (are)true with respect to vesting under a qualified defined benefit 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 cliff vesting.

Accepted Answer

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

Question 10

To encourage low- to moderate-income workers to save for retirement,a tax credit called the Saver's Credit is available.Which statement about tax credits and tax deductions is true?

Accepted Answer

A)  Tax deductions are more favorable than tax credits for most taxpayers.
B)  Tax credits reduce taxes owed on a dollar-for-dollar basis.
C)  Tax credits reduce taxable income.
D)  Tax deductions reduce taxes owed on a dollar-for-dollar basis.

Question 11

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 12

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 13

Which of the following statements about pension funding agencies and funding instruments is true?

Accepted Answer

A)  Under a trust-fund plan,individual annuities are purchased each year for employees participating in the plan.
B)  A separate investment account is a group pension account with a life insurance company.
C)  If the funding instrument is a commercial bank,the plan is called an insured plan.
D)  Under a guaranteed investment contract,the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate.

Question 14

Special vesting rules apply to qualified defined contribution plans with voluntary employee contributions and matching employer contributions.Which of the following statements is (are)true with respect to these vesting rules?
I.Employer contributions must vest immediately.
II.Graded vesting is permitted,and employer contributions must be 20 percent vested after 2 years,with an additional 20 percent vested in each of the next 4 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 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 16

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 17

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 18

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

Accepted Answer

A)  lump-sum distributions made after age 59.5.
B)  lump-sum distributions made directly to the employee at any age when he or she changes employers.
C)  lump-sum 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 19

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)  401(k) plans.
B)  SIMPLE retirement plans.
C)  cash balance plans.
D)  profit sharing plans.

Question 20

ABC Company offers a qualified retirement plan.ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit.This funding instrument is called a

Accepted Answer

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

Exam 17: Employee Benefits: Retirement Plans

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

Which of the following statements about Roth 401(k) plans is true? I.Contributions to a Roth 401(k) plan are made with before-tax dollars. II.Qualified distributions from a Roth 401(k) are received income-tax free.

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.

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

Under a 401(k) plan,what is compared to determine if the plan unfairly discriminates in favor of highly compensated employees?

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

Which of the following statements is (are) true with respect to vesting under a qualified defined benefit 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 cliff vesting.

To encourage low- to moderate-income workers to save for retirement,a tax credit called the Saver's Credit is available.Which statement about tax credits and tax deductions is true?

Which of the following statements about pension funding agencies and funding instruments is true?

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

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

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

ABC Company offers a qualified retirement plan.ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit.This funding instrument is called a